Surprisingly, the S&P 500 finished the week up ever so slightly. I bet you didn’t realize that. That’s because it didn’t feel that way. The headlines, the ongoing media commentary and the whipsaws throughout the week made the week in the market feel worse than it actually was.
In the chart below, you can see the S&P 500 finished the week up +0.70%. Of course that wasn’t without some pretty dramatic swings including two pretty sizeable gaps down to open the last two days of the trading week. Welcome back volatility. What really stands out to me in the chart below is how strong of a move the market made in the last hour of trading today, a Friday of all days. Wonder if the solid jobs report had anything to do with that?
What’s concerning about the recent market action are the big declines over a couple of days, followed by a big gain the following only to see the market go down big the next day or two. People that started investing 10 years ago or less aren’t used to these types of swings. It can be really nerve wracking getting used to this kind of action.
I saw a chart today showing how much of the recent drop the market had retraced as of Wednesday. This retracement was compared to similar episodes in 2000-2001 and 2007-2008. The gist of the chart is that we experienced a peak to trough decline of roughly 16% and have retraced about 10% of that loss. What was observed in 2000-2001 and 2007-2008 was a selling of the rallies. Stocks would retrace large portions of the losses, only to dip again as investors sold the rallies. The question posed by the author of the chart is will we see a similar pattern emerge in 2020? Selling rallies is the opposite of buying the dip and can reverse an uptrend in fairly quick order. Definitely something to keep an eye on in the coming days and weeks.