Tuesday, February 02, 2010
Yes, Macro Man knows that it isn't Monday. But many risk assets are performing like your average commuter feels on a typical Monday morning...tired, uninspired, and wishing it were the weekend.
OK, AUD has the excuse that the RBA failed to hike rates last night, though the statement probably couldn't have been more hawkish if they had....
...but what's the excuse of "Dr. Copper", which has been taken to the smelter once again? It presents an interesting contrast with recent solid PMI readings.
And the KOSPI, which Macro Man's been following closely for several months now, made a new closing low for the year. What gives?
Macro Man isn't sure.....though perhaps the anomaly is not Tuesday's price action, but Monday's. It's by now pretty well known that since the start of Q4, Monday has been something of a red-letter day (or should that be green-letter day?) for the SPX, as it's notched up 15 "wins" against just 2 "defeats", with an average daily return of 72 bps. Not bad shootin', eh, Tex?
By way of comparison, over the same time period, the other 4 days have notched up an average daily return of -11 bps; ah, there's the bear market we've been waiting for! How unusual is this? Macro Man decided to do some digging. Using daily SPX returns since 1928, he compared Monday's average return with that of the other 4 days over a few time periods.
Interestingly, since the start of the time series, Monday's performance has been notably worse than the rest of the week; despite the sharp nominal rise in the SPX over that time period, Monday's average return has actually been negative!
Since the start of the crisis, meanwhile (defined as August 2007), most of the SPX's losses have come on Mondays....the return from Tuesday - Friday has averaged just -1bp per day.
So perhaps this little "Monday effect" that we've observed is just a statistical quirk, representing "payback" for the unusually poor performance of Tuesday-Friday over the last 18 weeks or so? Maybe, maybe not.
Macro Man looked at rolling 18 week windows (i.e., the time period of recent Monday outperformance) since the start of his time series, comparing Monday's relative performance with those of the other 4 days. Let's just say that if Monday's recent outperformance were a school kid, it would get bundled straight into the "gifted and talented" group, as it's in the 99+% percentile of performance. The same holds true if we expand the dataset to look at relative performance of every day versus the other four in 18 week windows. The current bit of Monday outperformance is in the 99th percentile.
Now maybe it really is just chance...or maybe the tin foil hat crew are onto something Perhaps we'll never know, at least until the current crop of Federales get hauled before another Congressional committee.
Anyhow, Macro Man's advice is to enjoy Monday's while you can...reality will no doubt start to bite sooner rather than later. For the chap in the background of the video clip below, Macro Man somehow thinks it might be sooner....