S&P 500 Weekly Gains And Losses

Last week was rather rough for the stock markets all over the world. In the first four days S&P 500 lost more than 4%. Media is of course full of negative and scary articles and it’s easy to lose the big picture. But according to my calculations a weekly fall (from Friday to Friday on the close) of more than 4% has happened 53 times since 1993. That is 4% of the sample, so it happens quite often (in my opinion).

Here is the weekly distribution in percent (for example 547 observations/weeks where S&P rose more than zero but less than 2%):

The table below shows the return the following week after weeks with negative returns (if S&P 500 for example this week fell more than 5% then average return next week is 1.53%):

<0 <-1 <-2 <-3 <-4 <-5
0.40 0.48 0.38 0.33 0.63 1.53

For comparison the average weekly return over the whole period is 0.2%. In other words, any negative week shows much better performance the next week than any random week.

The table below shows the return the following week after weeks with positive returns:

>0 >1 >2 >3 >4 >5
0.05 -0.04 -0.11 -0.08 -0.36 -0.40

If this week was positive, we can expect negative return next week.

We can conclude S&P 500 has over the period shown strong mean reversion.