• This week, the S&P500 saw some of its tightest daily trading levels in three years.
• The trend towards low volume and volatility is likely to continue as summer progresses, according to history.
• Holiday trading conditions could distort future price action - Stock Market 2020 Holiday Calendar

S&P 500 FORECAST WEEK Ahead: THE SUMMER DOLDRUMS DO DRAG ON

As seasonality seems to be growing stronger, the S&P 500 is set for another week of sleep-inducing trade. The daily trading ranges continue to shrink and market activity may be further affected by the holiday weekend. Summer doldrums, which tend to lower volatility and volume at this time of the year, appear to be in full swing. Unfortunately for more active traders, they could continue in the coming weeks if past history is any guide.

According to S&P 500 monthly data, April to September has been the most volatile month in the year since 1990. It also tends to peak in August. The trend of lower volatility and volume in the summer season, which was evident after a relatively uneventful May and a relatively inactive June, seems to be set to continue this year.

Market activity could slide to new lows as traders search for potential catalysts. This is after nearly 18 months of trying to negotiate a novel market environment in which volatility remained elevated for extended periods. It is unclear if recent price action is due to investor fatigue or the underlying forces that are seasonal. However, the trend so far suggests that the former may be more important.

However, the lack of activity does not mean a lack in progress for major indices. The S&P 500 (albeit slowly) and the Nasdaq 100 (albeit quickly) push for new records while the Dow Jones attempts reclaim a lost trendline which was crucial in its climb from the pandemic lows. The continuation higher is encouraging, despite the lack of price action. This suggests that the longer-term uptrend remains solid. Follow @PeterHanksFX for analysis and updates as markets look for the next catalyst.