June 2014 marks the third lowest month of realized volatility for the S&P 500 Index during June since 1950. The graph above plots the returns (x-axis) and realized volatility (y-axis) for the 65 months of June since 1950. The “above average return, below average volatility” area is indicated in the lower right quadrant. The 19 previous instances generally occurred during bull market periods (e.g. ’93, ’95, ’96, ’04). However, the subsequent month of July–even during those bull markets–the SPX performed at a slightly below average pace, averaging +0.34%.
With the S&P 500 gaining +0.67% today, it is ahead of what we might expect to see for the entire month. With the shortened holiday week and the current momentum, a low-volume push is likely to carry the index higher into next week. But keep in mind the potential for a mean-reverting second half of July followed by the two worst months for the S&P 500 (August & September).