As a reminder that the best days in the market tend to happen in close proximity to the worst days in the market, the S&P 500 Index posted a single-day gain of more than 4% for the third time in the past seven trading sessions.
And yet the broad stock market index is still down 2.5% over that time period.
Tuesday’s gain (just shy of 5%) came amid indications that a substantial fiscal policy response to the economic fallout from the spread of the coronavirus is being discussed.
While the S&P 500 reversed two-thirds of Monday’s decline (the largest single-day drop since 2008), gains elsewhere were more modest. For example, the Value Line Geometric Index bounced less than 4% on Tuesday after falling more than 10% on Monday, a decline that took the index to its lowest level since early 2016.
From a breadth perspective, Tuesday’s bounce was also less than robust. Preliminary data showed up volume out pacing down volume on the NYSE by 8:1 – the best upside volume of the past few weeks, but shy of the 9:1 threshold we have been looking for (and much more muted than the 28:1 downside volume seen on Monday).
Note that we published an updated view on the Weight of the Evidence. We moved investor sentiment to neutral and downgraded breadth to bearish. The overall message of continued patience remains intact.
Beyond stocks, bond yields moved off of their recent lows (the yield on the 10-year T-Note moving toward 0.8%) and copper prices ticked higher after holding support at their January lows yesterday.
A report from the NFIB released this morning showed that small business optimism remains elevated and economic data overall continues to surprise to the upside. The momentum that emerged at the end of last year could be a saving grace for the economy as it contends with the effects of the coronavirus.
The Bottom line: Stocks posted impressive headline gains, but more strength needs to be seen beneath the surface to have confidence that the downside momentum in stocks has been broken. The weight of the evidence continues to argue for caution in the near term and we recommend that investors remain patient in the face of ongoing market volatility.
Twitter: @WillieDelwiche
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
