Stock market avoids further decline. Everything is great!

“We think even a small amount of market volatility speaks to how quickly the bulls ran for the exit,” Wald wrote.

Still, as April turned into May, it seemed like the pessimism might be justified. Tuesday’s strong numbers in the employment cost index gave the S&P 500 index its worst day since Jan. 31, while “disappointing” earnings for Advanced Micro Devices and Super Micro Computers led to a decline in Amazon.com’s Wednesday got off to a poor start, overshadowing Com’s positive news. . The index rebounded sharply after Fed Chairman Jerome Powell took a dovish stance at the latest post-Federal Open Market Committee press conference, but the market was unable to maintain its gains and ended the day lower. It ended.

To make matters worse, the S&P 500 fell 0.6% in the final 10 minutes of the trading day on both Tuesday and Wednesday. This selling gave the impression that someone, perhaps smarter than you or me, knew something and was using the force as an opportunity to lighten the stock.

Sales may have been lower than it appeared. These declines occur on April 30th and May 1st, the last day of the old month and the first day of the new moon, when there are many large orders that need to be executed at the closing price, resulting in the so-called market on-trend. There has occurred. It’s almost disproportionate, explains Mizuho’s Daniel O’Regan.

If the imbalance becomes bullish, stock prices may rise as market makers look for enough sellers to fill all orders. The opposite happens if the seller is out of balance. The fact that the first and last days of the month coincided with Amazon’s earnings release and the Federal Reserve’s monetary policy statement likely contributed to this move.

It is rare for a day to end with a decline of more than 0.5% in the last 10 minutes of trading. It is even rarer for this decline to occur two days in a row. The last time this happened was in February 2018, in what became known as Bormageddon, when a sharp increase in market volatility wiped out publicly traded products shorted in the market.

CBOE Volatility Index,

or VIX. Other notable events occurred in August 2015 when China devalued the yuan and in October 1987 during the Black Monday crash. Overall, this has happened only 10 times since 1985, including last week, according to data from Bespoke Investment Group, but each one was in the middle of a crisis, and each one was worse than the others. Some were also large in scale.

Before Wednesday, the S&P 500 index met the definition of a correction by being at least 10% off its 52-week high at the time of each decline, but it was usually much more. In fact, the index has fallen an average of 28% from its 52-week high over the past nine events, and 19% if you include just one of the four events during the 2008-2009 financial crisis. corresponds to This helps explain why, after the Lehman Brothers bankruptcy in October 2008, the S&P 500 rose each time after 12 months and fell only once after six months.

Nothing happened to precipitate the two sharp declines in the final stages. There were no bank failures, central bank actions, implosion of financial products, or other events that would make anyone run for the exit. Additionally, the S&P 500 index is down just 4.5% from its all-time high following a late-game decline, less than half way from correction. Because the market decline has been so small, a strong sell-off may not be enough to signal the kind of rebound typically seen after such a sell-off, writes Bespoke Investment Group’s Paul Hickey. “Although forward returns have been overwhelmingly positive, the fact that the hole in the S&P 500 is much shallower this time than at any other time in history is likely to prevent the index from rising as much in the coming months. It’s possible,” he explains.

There are other possible explanations. Between the change in sentiment and the massive sell-off at the close of trading, investors may have been bracing for an unlikely crisis. Employment numbers in April were weaker than expected, but still strong enough. The 10-year Treasury yield, which had threatened to hit 5%, has retreated.Even Apple
‘s

The company’s performance was not as bad as expected, which led to a significant profit. All of this together suggests that inflation may not be as big a problem as thought, and that the granddaddy of all tech stocks isn’t dead yet.

We should soon find out whether the current economic downturn is more than just a run-of-the-mill recession. Warren Paiz, founder of ThreeFourteen Research, points out that about three-quarters of corrections occur within 60 days — the current pullback started on March 28, 24 trading days ago. This starts the rally in a presidential election year, which would normally coincide with the end of June when the S&P 500 declines.

If you need an excuse for the market to rally, there are many options to choose from. Pais noted that the April consumer price index will be released on May 15th.

Nvidia
‘s

Events that may move the market include the announcement of financial results on May 22nd and the announcement of the personal consumption expenditure price index on May 31st.

But for now, the S&P 500 is on track to continue its winning streak for the second straight week, rather than resume its losing streak. Despite all the crises, this may simply be a reminder for investors to never let a good crisis go to waste, especially one that doesn’t materialize.

Write destination Ben Levison (Ben.Levisohn@barrons.com)