For those unfamiliar with the term, we consider an “all or nothing day” to be one where the S&P 500’s net daily A/D (advance/decline) reading is greater than +/-400. Throughout the financial crisis and most of the current bull market, the frequency of all or nothing days increased substantially relative to the years before. The reason for the increase was a one-two punch of an easy Fed and ETFs. As far as the Fed is concerned, easy money and low interest rates increased the attractiveness of equities relative to other asset classes, while at the same time ETFs provided an easy vehicle for investors to gain exposure to stocks while minimizing company specific risk. The result was an environment of a rising tide lifting all boats and vice versa, and the chart below says it all. From 1990 through 2005, there were just two years where the S&P 500 saw a double-digit number of all or nothing days, but from 2006 on, their frequency exploded and there hasn’t been a single year where there were less than ten all or nothing days. In fact, outside of 2006, there hasn’t been a single year where there were less than 20 all or nothing days!
This year, however, has been a different story. With the year already almost a quarter over, there has yet to be a single all or nothing day for the S&P 500. While the lack of volatility is definitely one factor at play, even in Tuesday’s decline, the net A/D reading for the S&P 500 was just -370. So even on a 1% down day, the market couldn’t muster an all or nothing day. The chart below shows the frequency of all or nothing days in a different context as above by showing the rolling 50-day total. As shown in the chart, there hasn’t been a single all or nothing day for the S&P 500 since 12/28/16 and that has brought the rolling 50-day total down to zero for the first time since the spring/summer of 2014 and just the second time since the start of the Financial Crisis. So what’s the root cause for the decline in all or nothing days? ETFs certainly haven’t become less popular, so that leaves the Fed. With the Fed having hiked rates twice in the last three months, the days of the Fed lifting all boats are in the rear-view mirror, and future gains are going to have to be on the back of companies/sectors showing earnings growth and/or the beneficiaries of regulatory/tax relief.