3% Daily Declines in QQQ

There’s no questioning that markets have been extremely volatile this year. Yesterday, the Nasdaq 100 tracking ETF (QQQ) declined by 3.0%, which for 2022, has not been a foreign occurrence. In fact, yesterday was the eleventh time this year that QQQ fell by at least 3%. Since QQQ began trading in 1999, this will be the fifth-highest number of 3%+ daily declines in the first half of the calendar year (top chart below). Although the number of 3%+ daily declines is still well below 2020 and dot-com era levels, it is still a significantly elevated reading. In fact, this year’s first-half pace has been well ahead of levels from 2008 and 2009 and is only three shy of the pace in 2020. Click here to learn more about Bespoke’s premium stock market research service.

Volatility has not been exclusively to the downside, though. On top of the 11 3%+ declines, there have been nine days so far in 2022 in which QQQ rose by at least 3%, bringing the total number of absolute daily moves of 3%+ to 20. This too ranks fifth of all years since 1999, falling five short of 2020 and 31 short of 2000.

QQQ Declines

Of all 260 3%+ daily declines in QQQ since 1999, 143 occurred between the start of 2000 and the end of 2002 (the unwinding of the dot-com bubble). During this time, QQQ fell a whopping 74.3%!  The chart below shows QQQ since 1999, with the red dots marking each 3%+ decline.

Nasdaq 100 Chart (QQQ)

QQQ’s performance following these occurrences is heavily skewed by the dot-com era weakness. While performance over the following week has been slightly better than average versus all periods since 1999, forward returns in the following one and three months have trailed the long-term averages.  Since the end of the dot-com bubble burst (2003), forward returns following these occurrences looks much more attractive with QQQ averaging a gain of 44 bps (median: 54 bps) in the week following a decline of 3%+. Over the following month, QQQ has averaged a gain of 1.4% (median: 1.6%) and over the next three months has averaged a gain of 7.3% (median: 7.2%). The positivity rates over the following week, month, and three months have been 57.6%, 58.3%, and 74.5%, respectively. Click here to learn more about Bespoke’s premium stock market research service.

The Quitter Market

If it seems to you like the market simply can’t hold on to gains this year, you aren’t mistaken.  The chart below shows an intraday composite of the S&P 500 on a median basis over the last 100 trading days through the end of April.  The general pattern during this period has been for the market to open modestly higher, but then sell off for the remainder of the morning.  It has then regained its footing shortly after mid-day but then sells off into the close.

Market Intraday performance

How does the last five months or so compare to history?  The charts below really put the recent trend of intraday weakness into perspective.

The first chart shows the number of days over a rolling 100-trading day period that the S&P 500 tracking ETF (SPY) traded in positive territory on an intraday basis but finished the day down.  The reading currently stands at 38 and was as high as 40 (red line) in the last week of April.  As shown in the chart below, there hasn’t been another period that the S&P 500 has had so much trouble holding onto intraday gains in more than a decade (October 2010)!

SPY intraday performance

For the Nasdaq 100 (QQQ), it has been a similar story.  As recently as April 22nd, the trailing number of times in the last 100-trading days that QQQ traded in positive territory on an intraday basis but finished the day lower reached 42 and currently stands at 40. Like SPY, the recent reading of 42 was the highest number of occurrences in a 100-trading day span since October 2010.

For both indices, the currently elevated frequency of giving up intraday gains has been extremely uncommon for the post-financial crisis period.  Interestingly enough, though, in the ten years before the financial crisis, these types of periods were a lot more common, especially for the Nasdaq.  Could it have anything to do with the fact that the last 12 years have also been one of the more accommodative monetary environments investors have ever experienced?  Click here to learn more about Bespoke’s premium financial markets research.

QQQ Intraday performance