Here’s another wrinkle in the market-bottom versus bear-market bounce debate.
The pace of the stock market’s rise as it continues a bounce off the June lows is nearing a magnitude that’s preceded “huge” moves in the past. The dilemma for investors is that those moves can be in “either direction,” analysts at Jefferies observed in a weekend note.
Through Friday, the S&P 500 SPX,
Read: Why the U.S. stock rally looks more like a new bull market than a bear bounce to these analysts
But it’s the large-cap benchmark S&P 500’s more-than-7% rise over the past four weeks that is “dangerously close to extremely interesting from a signal perspective,” wrote Jefferies strategists, including Andrew Greenebaum, in a Sunday note.
A rise of just more than 8% over four weeks would mark a two-standard deviation for S&P 500 rallies, they observed, based on data going back to 1990, which means the market won’t need “much more juice” to hit statistically significant territory.
And in the 17 times the S&P 500 has hit that threshold, the subsequent performance “looks massive,” they wrote, averaging 9% over the next six months. But there’s a notable caveat in that there were also several instances that saw double-digit negative returns. And when the prior six months were negative — as would be the case this time around — “the likelihood of positive returns drops precipitously,” they wrote (see chart and table below).
The takeaway, they said, is that “while the seemingly unstoppable bounce may lure folks in, there is still a strong chance it’s just a (quite tradeable) bear market rally.”
See: Why the S&P 500’s ‘bounce within a bear market’ could fizzle before it hits 4,200
European stocks slumped, the euro fell and natural gas skyrocketed after Russia said it was cutting off gas supplies through the Nord Stream 1 pipeline indefinitely.
William Watts is MarketWatch’s senior markets writer. Based in New York, Watts writes about stocks, bonds, currencies and commodities, including oil. He also writes about global macro issues and trading strategies. Before moving to New York, he reported for MarketWatch from Frankfurt, London and Washington, D.C.
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