On November 6, the day after the U.S. presidential elections, the VIX (the S&P 500 volatility index) dropped by more than 20% at market opening. This reflected the relief among market participants that the new president’s identity was finally known and that the decisive victory reduced uncertainties tied to potential challenges and protests from voters dissatisfied with the results.
According to SentimenTrader, this is the 15th time the VIX has opened with a decline of at least 15%, and historically, this has boded well for the S&P 500. Over three- and six-month periods, the S&P 500 has traded at higher levels 86% of the time, with average returns of +3.2% and +5.3%, respectively. Furthermore, the maximum pullback recorded by the S&P 500 over these periods did not exceed -6.7%. As of last Friday, the S&P 500 had already posted a +3.67% return since market close on election day.
Now that the U.S. presidential elections and the Federal Reserve's decision are behind us, the financial community is refocusing on the essentials: the economy and quarterly earnings reports.
From a market perspective, it is well established that it typically takes around three days for market participants to digest an event perceived as a surprise, whether positive or negative. Last Friday thus marked the third day, during which the S&P 500 crossed the 6,000-point threshold for the first time.
While this event isn’t dramatic, the benchmark index failed to close above this level, signaling the first sign of weakness among buyers since Wednesday. A consolidation phase, or even a slight pullback, seems to be the most probable scenario in the short term.
Source:
Dean Christians. A Historic Plunge in the Fear Gauge. ModelEdge Report, SentimenTrader, November 6, 2024.
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