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Examine the S&P 500 Historical Averages in Relation to Current Issues, Dollar Wobble at Decade Highs

Talking Points: S&P 500, VIX, Event Risk, Central Banks, Dollar, and USDJPY
Market Outlook: S&P 500 Bearish Below 4,100; EURUSD Bullish Above 1.0000
A recovery in ‘risk assets’ in the second half of this week runs counter to both seasonal (market conditions) and fundamental forecasts.
While there are a number of critical structural updates ahead that will impact growth discussions, my primary concern will remain rate speculation.
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A Contrary Turn to Seasonal Expectations
As we approach deeper into the Fall trading session, which usually sees higher market activity and volatility – as well as a closely observed average for S&P 500 performance – it is worth noting the contrast we saw in the second half of this week. Despite major central banks’ relentless warnings of greater tightening ahead and fears of future economic hardship, the US indices and other sentiment-defined market gauges rose sharply. The S&P 500’s 3.7 percent rise through Friday constituted the first positive performance in four weeks, while the three-day tempo through Friday mirrors prior occurrences that peaked or extended their advance through 2022. Technically, the markets are still very early in their recovery, and the fundamental weight is nearly as severe as the seasonal assumptions.
S&P 500 Volume Chart, 20 and 200-Day SMAs, and 3-Day ROC (Daily)

This chart was created using the Tradingview Platform.
In my personal analytical importance hierarchy, I feel that market conditions should be prioritized over either fundamental or technical analysis. Within limits, I believe that engagement and a predilection (e.g., seasonality) for specific risk patterns can have a significant impact on how traders and investors respond to external market data. As a reminder, the month of September has traditionally seen a rise in volume for my favorite, imperfect gauge of sentiment – the S&amp 500 – as well as the beginning of the volatility crest. Many individuals will be focused on the single loss averaged over calendar months in a 1990 study. ‘This time is different,’ is an important wake-up call, but averages should keep us alert.
Chart of the S&P 500’s Average Monthly Change, Volume, and Volatility from 1980 to the Present

John Kicklighter created the chart.
Because of the movement of money determined by society conventions, volatility and general involvement indicators can more easily conform to historical averages. However, directed considerations place significantly more emphasis on the particular basic issues of the current moment. If that is our criterion, there isn’t much genuine backing for those with a long-term bullish outlook. While the threat of a recession has subsided slightly in the United States and others, it is far from gone. Furthermore, central banks are making a concentrated effort to warn of impending tighter financial conditions. It is feasible to overcome these challenges, but the historical norms of three weeks of losses averaged from weeks 37 to 39 will be scrutinized.
Average Weekly Performance of the S&P 500 from 1900 to the Present

John Kicklighter created the chart.
What to Look for in a Big Picture Analysis
There is plenty of high-level event risk that can fuel volatility in the coming week’s economic calendar, but the ability to shift into systemic currents is normally reserved for only a few crucial themes. Recession fears, in my opinion, remain a lurking threat, thus some important event risks should be highlighted in our collective calendars. On Monday, the UK GDP and GDP tracker will be released, followed by New Zealand’s official 2Q GDP release on Wednesday, US retail sales on Thursday, and Chinese August data on Friday. As significant as this run is, it is likely that monetary policy issues will rise in mood. The Bank of England’s (BOE) rate decision has been postponed a week in honor of Queen Elizabeth’s dying, but the UK is still expecting inflation numbers. That data, however, pales in comparison to the worldwide impact of the US CPI on Tuesday.
Major Macroeconomic Events Calendar

John Kicklighter designed the calendar.
Monetary policy remains a key catalyst on the fundamental side, but there are other ways to assess the data. The contrast between overt hawks and doves provides enticing material for speculation for FX traders and other global macro participants. My interests, on the other hand, are more systemic in character. There has been a huge incentive for risk taking, which has at least borrowed some confidence from the world’s central banks, who have massively expanded their balance sheets over the last decade. To me, the correlation between the S&P 500 and aggregate central bank stimulus appears to be more than coincidental. Given the key actors’ rhetoric to raise rates until inflation is under control, while the Fed and ECB consider balance sheet reductions, there is substantial backlash that may begin now.
Aggregate Major Central Bank Balance Sheets in US Dollars Overlayed with the S&P 500 (Monthly)

John Kicklighter created this chart using data from the St Louis Federal Reserve Economic Database.
Consideration of the Relative
While I believe a structural shift in global monetary policy to be one of the most essential phenomena to observe, there is still an almost occult interest among the majors in relative interest rate expectations. The ECB (75bp), Bank of Canada (75bp), and RBA (50bp) all increased and exceeded expectations this week. However, traders who are dissatisfied with the ‘in-line’ outcome are unlikely to be moved. Furthermore, with so many of the leading central banks undertaking hawkish policies in order to get ahead of inflation, there isn’t much difference in seeing this direction emerge too frequently or aggressively.
Chart illustrating Relative Monetary Policy Position with Year-End Swap Rate Forecast

John Kicklighter created the chart.
Looking at the scale of relative monetary policy rankings, it is striking how comparable the present rate and expectations are for currencies such as the Dollar, Pound, Canadian Dollar, Australia, and New Zealand. Moving towards an inflationary battle appears to be the norm. However, there is a clear contrasting counterpoint to the hawkish allegation. While so many authorities are tightening and issuing warnings about what is to come, I feel USDJPY is a particularly relevant gauge to monitor. The contrast of ‘risk trends,’ growth potential, and capital pressures are all factors to consider.
John Kicklighter recommends
How to Invest in USD/JPY
USDJPY chart with 20, 200-day SMAs, and 1-day rate of change (Daily)

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