By William Watts
In One Chart: Stock market’s ‘ultimate lows’ are still ahead as investors have not yet capitulated, says B. of A.
It was quite a bounce. The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +1.01% , which slipped into a bear market earlier this year and fell to a nearly 2 1/2-year low in the past week, jumped 3.8% Friday for its biggest one-day percentage gain since Nov. 4, 2020. That trimmed its weekly fall to a still hefty 2.8%.
The S&P 500 rose 2.4%, nearly halving its weekly decline. That left the large-cap U.S. benchmark down down 16.1% from its record close in early January, after ending Thursday just shy of the 20% pullback that would meet the technical definition of a bear market. The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.23% rose 466.36 points, or 1.7%, leaving it with a weekly decline of 2.1%.
Stock-index futures were down slightly early Monday.
Read: Despite bounce, S&P 500 hovers perilously close to bear market. Here’s the number that counts
And all three major indexes are sporting long, weekly losing streaks, with the S&P 500 and Nasdaq each down for six straight weeks, the longest stretch since 2011 and 2012, respectively, according to Dow Jones Market Data. The Dow booked its seventh consecutive losing week — its longest streak since 2001.
The S&P 500 has yet to formally enter a bear market, but analysts see no shortage of ursine behavior.
As Jeff deGraaf, founder of Renaissance Macro Research, observed on Wednesday, correlations between stocks were running in the 90th to 100th decile, meaning lockstep performance that suggested equities were largely trading in unison — “one of the defining characteristics of a bear market.”
While the S&P 500 has moved “uncomfortably close” to a bear market, it’s important to keep in mind that big stock-market pullbacks are normal and occur with frequency, analysts said. Barron’s noted that the stock market has seen 10 bear-market pullbacks since 1950, and numerous other corrections and other significant pullbacks.
But a downturn following the speed and scope of the recent rally may understandably be leaving investors rattled, particularly those who haven’t experienced a volatile downturn, said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research, in a phone interview.
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The rally had seen “every single sector of the market going up,” he noted. “That’s not a normal market” and now the worm has turned as monetary and fiscal policy tightens up in reaction to hot inflation.
The appropriate response, he said, is to follow the same tried-and-true but “boring” advice usually offered during volatile markets: stay diversified, hold many asset classes and don’t panic or make wholesale changes to portfolios.
“It’s not fun right now,” he said, but “this is how real markets work.”
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