The S&P 500’s close below 3,900 on Thursday signaled the stock market’s rally off the October lows was merely a “tactical bounce,” according to a top Wall Street chart watcher.
“The market’s 20-day low, a break of 3900 on the [S&P 500]
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suggests that the latest leg from October’s CPI report through Wednesday’s CPI report was nothing more than a tactical rally,” said Jeff deGraaf, chairman and head of technical research at Renaissance Macro Research, in a Friday note (see chart below).
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“It has been our opinion that the rally was a by-product of ultra-dry tinder (off-sides positioning, seasonality) ignited by the spark of improving financial conditions (contracting nominal yields, contracting BBB spreads and a weak dollar), but nothing that translated into escape velocity to the gravitational pull of the bear market,” deGraaf wrote.
Stocks fell sharply on Thursday, a day after the Federal Reserve delivered a half-point interest rate increase and indicated the fed-funds rate was likely to peak above 5% next year and remain there.
Half-point hikes by other central banks on Thursday, including the Bank of England and the European Central Bank, were seen driving home expectations for rates to remain elevated, particularly after ECB President Christine Lagarde emphasized that a series of half-point hikes remained a strong possibility in the effort to quash inflation.
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Stock-index futures pointed to another round of selling Friday. The S&P 500 dropped 2.5% on Thursday to close at 3,895.75, its lowest finish since Nov. 9. The S&P 500 closed at 3,577.03 on Oct. 12, its lowest finish since 2020, before bouncing as high as 4,080.11 on Nov. 30.
The S&P 500 remains down nearly 19% from its all-time high finish of 4,796.56 set on Jan. 3 and was down 18.3% for the year to date through Thursday’s close. The Dow Jones Industrial Average
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has outperformed other major indexes, down 8.6% for the year to date.
Source: https://www.marketwatch.com/story/still-a-bear-market-s-p-500-slump-signals-stocks-never-reached-escape-velocity-11671198852?siteid=yhoof2&yptr=yahoo