The data is clear -- Turnaround Tuesday is the real deal
'Turnaround Tuesday' is a common phrase amongst traders, which refers to the stock market’s tendency to rebound after a weak Monday. That’s not exactly what we saw yesterday with the S&P 500 Index (SPX) suffering a slight dip after Monday’s big 1.7% loss. In the analysis below, I first show whether Turnaround Tuesday is supported by actual numbers or just a pundit talking point. Then I show how stocks tended to perform for the rest of the week based on what we’ve seen at the beginning of this week.
Turnaround Tuesday is Real
Often times, market catchphrases don’t live up to the hype when you try to quantify them. Just ask 'Sell in May and Go Away.' Turnaround Tuesday, however, is a real thing. The table below summarizes the return for Tuesdays after a big 'down day' on Monday, defined as down 1.5% or more. Then I show the return for any Tuesday in which Monday was a trading day. The last column shows the average daily return for the S&P 500 since 2010.
Since 2010, when the S&P 500 lost 1.5% or more on Monday, Tuesday averaged a 0.9% return with just over 70% of the returns positive. That’s significantly better than normal Tuesdays since 2010 in which the index averaged a gain of just 0.1% and was positive 54% of the time. Note that volatility also spikes on Tuesdays after a poor Monday. The average positive gain for stocks was 1.86% and the average negative return for stocks in these circumstances was -1.43%. These figures are more than two times the magnitude normally for Tuesday (average positive of 0.73% and average negative of -0.65%). Based on these numbers, yesterday was an abnormality and the next time stocks fall significantly on Monday, consider buying some stocks at the end of the day.
The Rest of the Week
The table below shows what we might expect for the rest of the week. Since the S&P 500 had a slight loss yesterday, that puts us in that first column. In the ten instances when Monday was down big then Tuesday was up moderately, the rest of the week averaged a 0.35% gain with 80% of the returns positive. After big losses on Monday since 2010, the only time the market has performed poorly was when Tuesday rebounded strongly by more than 1%. In those instances, the market averaged a loss of 0.29% with 57% of the returns positive.
