The S&P 500's "Wartime Mode": Early-Week Gains, Followed by Sideways Movement and Thursday-Friday Declines
The U.S. stock market has developed a trading pattern: strong performance early in the week, followed by sideways consolidation, and then declines on Thursdays and Fridays as uncertainty surrounding the Iran conflict intensifies. Investors tend to reduce their stock holdings later in the week because they cannot trade over the weekend and cannot be certain of what might happen during that time. Despite optimistic market sentiment early in the week, experts remain skeptical about the sustainability of the rally due to persistent uncertainty and the lack of a ceasefire in the conflict
A Middle East war that has lasted for five weeks and sent shocks through the global economy has caused the U.S. stock market to gradually form a predictable pattern: a strong start early in the week, sideways oscillation mid-week, followed by declines almost "on cue" every Thursday and Friday.
Similar trends have appeared to varying degrees in European stocks, emerging markets, and even some U.S. Treasuries, but the pattern is especially pronounced in the S&P 500. Since the outbreak of the Iran conflict, the index has cumulatively risen during the first three trading days of each week, but has plunged by a combined total of approximately 9% on Thursdays and Fridays.
Optimism was particularly evident early this week, with the S&P 500 rising more than 3% as the market perceived that Trump intended to extricate the U.S. from the Iran conflict.
Analysts say the logic behind this is simple: the weekend means two days—or even three this week with the market closed for a holiday on Friday—during which trading is impossible. During this time, the war situation could change significantly, especially considering President Trump's tendency to take major actions while markets are closed. These changes could further impact the global economy. Therefore, many investors choose to reduce their stock positions before the weekend.
Joe Gilbert, portfolio manager at Integrity Asset Management, said: "Entering a trading blackout period in the face of unpredictable risks is unsettling. It has become easier to reduce risk before the weekend rather than holding positions."
However, this "intraday/intraweek trading pattern" formed during the war also serves as a warning to those who believe the sell-off has ended:
Following the rally early this week, some optimists believe a market bottom has formed. "Big bull" Tom Lee stated that U.S. stocks often bottom out in the early stages of a war, and this round of correction is nearing its end. The S&P 500 typically bottoms within the first 10% of a war's duration; inflation-adjusted oil prices are lower than the average for this century, suggesting a limited impact on the U.S. economy; combined with the current state of extremely cautious market positioning, 90% to 95% of the current correction has been completed.
Steve Sosnick, chief strategist at Interactive Brokers, said that as the week progresses, optimism is typically replaced by risk aversion.
