In the first six months of 2020, the S&P 500 Index (NYSEARCA:SPY) has fallen approximately 6.6%. The first half of the year was the most volatile for SPY since the “sub-prime” crisis in 2020. This year, business activities collapsed when governments across the globe started lockdowns to curb the spread of COVID-19.
What does seasonality suggest for the rest of 2020?
Volatility and the S&P 500 Index were oppositely related. Higher volatility indicates turmoil in the equity market, while the opposite is also true. Volatility is an important concern for investors.
According to a blog by the Federal Reserve Bank of St. Louis, over the last decade, the growth in the first-quarter GDP was lower compared to the rest of the quarters. The economist referred to the occurrence as “residual seasonality.” The stock market is directly proportional to the GDP growth rate. The residual seasonality factor could impact the market in the first quarter. This year, the COVID-19 outbreak made the situation worse.
President Trump’s decision to ban H1-B visas to boost domestic employment figures could be a positive development for the GDP growth rate. According to the Federal Reserve Bank of Atlanta’s recent estimates, it expects the US real GDP growth rate to contract by 39.5% in the second quarter. In early June, the model estimated a contraction of 52.8%. The lower contraction rate suggests an improvement in various economic indicators. An improvement in the economic indicator is a positive development for the equity market.
S&P 500 Index’s technical indicators
Last week, the S&P 500 Index settled 3.1% and 0.4% below its 20-day moving average and 200-day moving average, respectively. On the same day, the equity index was around 1% and 2.8% above its 50-day and 100-day moving averages, respectively. Also, the 50-day moving average was just 1.3% below the 200-day moving average. If the 50-day moving average moves above the 200-day moving average, it will be a “golden cross” for the index. Usually, when a short-term moving average moves above the long-term moving average, it’s considered bullish for the stock.
On June 26, the S&P 500 Index’s RSI (relative strength index) was at 45.6. The reading was based on closing prices in the last 14 trading sessions. In technical analysis, the RSI gives an idea about an overbought and oversold market. Generally, a reading below 30 suggests an oversold market, while a reading above 70 suggests that markets are overheated. However, technical indicators can be misleading.
Read Do Technical Indicators Hint at Strength for BP Stock? to learn more.