What a difference a week can make. Last Tuesday the S&P 500 Index closed at a new five-month low and there were many growing concerns. From China trade issues, to peak earnings, to slowing global growth, to a potential Federal Reserve policy mistake—the list added up to the worst month in nearly seven years for the S&P 500.
Well, extremely oversold markets can bounce, and did we ever see a rare bounce last week! In fact, the S&P 500 gained at least 1% on three consecutive days for the first time since right after the Brexit vote in June 2016. Turns out, markets making a new five-month low followed by three strong days in a row tend to continue climbing higher.
“Last week’s extreme market strength from oversold levels could be just what the bulls needed. We’ve had so much bad news lately, this could be the turning point,” explained LPL Senior Market Strategist Ryan Detrick.
As the LPL Chart of the Day shows, stocks have never been lower three months after the S&P 500 reached a five-month low and was then up 1% three days in a row. The returns 6 and 12 months later have been quite strong as well. In fact, the two times future returns were weak were during the recession of ‘73/’74 and the tech bubble recession. Non-recessionary environments have been rather strong, a good sign given we don’t anticipate a recession over the coming 12 months.
Source: LPL Research, FactSet 11/2/2018
Be on the lookout for our Weekly Market Commentary due out later today, where we will take a closer look at other reasons to expect a potential year-end rally.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not bank/credit union obligations and are not endorsed, recommended or guaranteed by any bank/credit union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.