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Good Morning Subscriber,
It’s a quiet start to the new week with US futures mixed, treasury yields modestly lower, and crypto assets rallying. The economic calendar is also pretty quiet today with Dallas Fed Manufacturing the only release on the calendar. We will get some commentary throughout the day from Fed speakers, though, so those have the potential to cause some ripples in the market as they hit the wires. Overnight in Asia, the Chinese central bank said that the economy continues to improve and show signs of stability. In Europe, the trend has been modestly lower with Travel and Leisure stocks experiencing the largest declines while defensive catch a bid.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, an update on bitcoin and crypto technicals, the latest US and international COVID trends including our vaccination trackers, and much more.
Today brings the start of a new trading week but also marks the beginning of the sprint to the finish of Q2. With just three trading days left in the second quarter of 2021, the S&P 500 has already rallied 7.75% in what has been another impressive quarter. With stocks up strongly heading into quarter-end, there’s always a concern that the quarter will close off on a weaker note as portfolio managers look to rotate out of equities in order to get their weightings more in line with their target allocations. While rebalancing like this invariably does occur, long-term performance numbers do not suggest that it has a significant impact on market returns in the final days of the quarter- at least not when the gains are in the high single-digit percentage range and above.
The scatter chart below compares the S&P 500’s QTD returns up until the last three trading days of the quarter (x-axis) and compares that to the S&P 500’s performance in the last three trading days of the quarter. If there was an inverse relationship between QTD performance and returns in the last three trading days, you would expect to see dots higher up towards the left side of the chart and trending lower as you move right. As shown, that type of pattern is minimal at best.
On the right side of the chart, the shaded area represents all quarters where the S&P 500 was up over 5% heading into the last three trading days of the quarter, and we have enlarged that area in the lower chart. While the strongest quarter (Q1 1987) saw the S&P 500 decline 3% in the last three trading days of the quarter, other than that, the dots are scattered all over the place in no meaningful pattern. Of the 305 prior quarters since 1945, the S&P 500’s performance in the final three days of the quarter was a gain of 0.12% with positive returns 58% of the time. In the 113 quarters where the S&P 500 was up at least 5% heading into the final three trading days, though, the S&P 500’s average change to close out the quarter was a gain of 0.005% with positive returns 50.4% of the time. So there is some negative drag, but it’s minimal.
