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Thursday, October 6, 2022
Today’s newsletter is from Jared Blikre, a markets-focused reporter for Yahoo Finance. Follow him on Twitter @SPYJared.
Stocks clawed back early losses on Wednesday, and the Dow posted its best performance to start a quarter since 1938. Impressive, right? Traders might be tempted to think that we’ve bottomed out, and from there it’s all upside down.
But before you get too excited, let’s have a frank discussion about market statistics.
Headlines beginning with “better” or “worse” dominate the financial media today, as they have many days in this tumultuous year. This is to be expected when volatility rises. The days with the best historical returns tend to be grouped with the worst. It seems the market gods are simply tossing coins.
So how do you understand the markets without getting whipped? The key is to distinguish the real signals from all that noise. And while the public is laser-focused on price swings, most of them are just noise.
True signs appear infrequently and can be difficult to identify. Take the current price action. We started the week with a two-day gain, the first time the S&P 500 posted consecutive gains of more than 2.5% since the global financial crisis in late 2008.
Then the big gains in the resulting bull market came substantially later a cluster of “signals” in 2008, meaning this information may not have been all that useful to investors trying to time the low.
First, September 2008 saw two consecutive days of 2.5% gains, quite early in this bear market. But buying this event was a clear loser as the index immediately reversed to the downside.
Then, in late November and early December, came three similar sets of back-to-back gains. Conceivably, these were close enough to the minimum that they could have been useful for long-term traders. But if investors had bought right after those gains, they wouldn’t have made money until about five months later, an eternity for short-term “bettors.”
Traveling even further through market history, we see two examples of this 2.5% two-day momentum signal following the bursting of the dot-com bubble in 2000. One case approach the historical high of April 2000 and the other. took the lowest price in October 2002, two years later.
Back to the fourth quarter of 2022. We’re all waiting for inflation data to cool so the Fed can stop raising rates. That certainty could calm the markets, paving the way for them to move steadily higher again. When a clearer picture emerges, we’ll all need cash to buy what many see as a generational opportunity to get stocks on the cheap.
You may be shopping now. And that’s fine if you’re investing according to a predefined investment or trading plan. But the riskiest action we can take is to get caught up in the headlines and burn through our liquidity before this bear finally decides to hibernate.
What to see today
economic calendar
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7:30 am ET: Challenger job cutsyear-on-year, September (30.3% over the previous month)
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8:30 am ET: Initial unemployment claimsweek ended October 1 (203,000 expected, 193,000 for previous week)
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8:30 am ET: Continued claimsweek ended September 24 (1.387 million expected, 1.347 million for previous week)
Earnings
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Angiodynamics (ANGO), conagra (CAG), Constellation Marks (STZ), Levi Strauss (LEVI), McCormick (MCC)
Yahoo Finance Highlights
Labor shortage: ‘You have to start thinking that robots can do some of these jobs,’ says expert
Housing “brought to its knees by the Federal Reserve,” says the expert
Elon Musk’s latest 180 deals another blow to Donald Trump’s new media company
Oil: ‘We’ll see $65 before we see $100’ in WTI, says analyst
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