Does the S&P 500 always decline on Thursdays? Wall Street warns that the midweek rebound may be short-lived

The Middle East conflict has been ongoing for five weeks, and the chaotic trading in global markets has also lasted for five weeks. Some analysts on Wall Street have pointed out that, during this period, the U.S. stock market appears to be following a seemingly predictable pattern: a strong start to the week, then sideways consolidation in the middle of the week, followed by a sharp selloff on Thursday and Friday.

European and emerging-market stock markets have shown a similar pattern as well, though the cyclicality of the S&P 500 index is especially pronounced. Since the outbreak of the U.S.-Iran conflict, the index has gained over the first three days of each trading week, then rapidly declined on Thursday and Friday. Over the past five weeks, the combined losses on Thursdays and Fridays have totaled 9%.

The S&P 500 index trend for every Thursday and Friday is shown in the red box.

Given that U.S. President Trump likes to release some key policies on weekends when the market is closed, many investors tend to reduce their stock holdings over the weekend.

Joe Gilbert, portfolio manager at Integrity Asset Management, told the media that entering the weekend is unsettling when risks are still unknown; reducing risk before the weekend is more important than holding positions.

Steve Sosnick, chief strategist at Interactive Brokers, said that optimism usually gets replaced over the course of the week by risk-avoidance sentiment. He believes the downward trend in U.S. stocks will continue until the economy returns to normal.

False optimism expectations

This week has some special circumstances. U.S. stocks were closed on Friday for Easter, meaning there were three non-trading days this week. Meanwhile, Trump has continued to show an attitude of being willing to negotiate with Iran over the past two weeks, significantly boosting market optimism, and the S&P index rose by more than 3% over the first three days of this week.

However, late on Wednesday, Trump, in a televised address, promised that he will continue to bombard Iran in the coming weeks, causing market optimism to dissipate quickly. S&P 500 index futures fell 1% after the close, while oil prices surged, indicating that U.S. stocks could drop again on Thursday.

Benjamin Picton, an analyst at Rabobank, said that the optimistic interest in the market over the past 24 hours is very likely to be misplaced. Trump’s underlying message is that NATO and the Gulf states must participate in this war to reopen the Strait of Hormuz, otherwise they will have to bear the consequences for the global economy of the United States withdrawing its troops.

Asian markets have already felt the scent of a new storm. On Thursday, Japan’s Nikkei 225 index closed down 2.38%, and South Korea’s Kospi index fell 4.47%. At the same time, spot gold prices dropped quickly, falling from Wednesday’s closing price of $4,783 per ounce to below $4,600 per ounce.

Rich Privorotsky, head of Goldman Sachs’ Delta-One business, had previously warned in a report that global equity markets’ sentiment and positioning have shifted to extreme bearishness. Although there are conditions for a technical rebound in the short term, the macro and earnings logic are still not sufficient to give investors confidence to go long.

(Source: Caixin Global / 财联社)