This All Star Charts +Plus Monthly Playbook breaks down the investment universe into a series of largely binary decisions and tactical calls. Paired with our Weight of the Evidence Dashboard and our Playbook Chartbook, this piece is designed to help active asset allocators follow trends, pursue opportunities, and manage risk.
The S&P 500 just narrowly avoided finishing Q3 with the first back-to-back-to-back 3%+ weekly declines since 2009. It followed that up with the first back-to-back 2.5%+ gains since December 2008 to start Q4. Volatility isn’t showing up in the VIX but it is apparent in the daily and weekly price action.
Why It Matters: There is an inverse relationship between market volatility (as measured by big daily swings, in either direction) and market strength (as measured by new highs > new lows). In the past quarter century the only year with more volatility than 2022 was 2008. No year has seen as little strength.
What’s Next: After a bruising first three quarters of the year, hopes for Q4 run high. If a rally is going to be sustained and the trend for stocks turn higher, it will likely be accompanied by less volatility and more strength. For that to play out, more stocks need to start making new highs than new lows.
