Why S&P 500’s ‘roller coaster’ Monday may bode well for stocks, according to Bespoke

Why S&P 500’s ‘roller coaster’ Monday may bode well for stocks, according to Bespoke

U.S. stocks resembled a “roller coaster” on Monday with a pattern of swings that frequently followed a market low, as the S&P 500 tries to recover from April’s slump, according to Bespoke Investment Group.

“The S&P 500 opened higher, quickly sold off in the morning, gave up nearly all its early gains, and then rallied into early afternoon only to drift lower into the close,” Bespoke, a research and money-management firm, said in a note emailed Tuesday. “For a nervous investor watching every tick, the emotional swings probably went something like the comments in the chart below.”

“We have no idea whether Friday’s close was the low point of this month’s decline,” said Bespoke, “but what we can tell you is that yesterday’s intraday pattern is very common and the type of action you often see as the market is coming out of a low point in the decline.”

The S&P 500 dropped below 5,000 this month, closing at 4,967.23 on April 19. The index rebounded Monday to snap six straight days of declines before extending its rally on Tuesday afternoon.

The S&P 500 was up 1.2% at around 5,069 in early afternoon trading on Tuesday, paring its April loss to about 3.5%, according to FactSet data, at last check. U.S. stocks were broadly advancing Tuesday afternoon as Treasury yields fell.

The yield on the 10-year Treasury note was down about four basis points at around 4.57%, according to FactSet data, at last check. Still, Treasury rates remain up so far in April, with U.S. equities selling off this month as yields climbed.

Analysts have blamed the stock market’s slide in April on “everything from the tax deadline to geopolitics, higher rates, or an overbought market,” according to Bespoke. The S&P 500 ended April 19 with a monthly drop of 5.5%, FactSet data show.

“The fact that gold and the dollar — two of the biggest haven assets — both rallied throughout much of the decline suggests” geopolitical worries may have been “a large factor,” Bespoke said. “If, as gold’s price suggests, these anxieties are easing, it could bode well for future market performance.”

But whatever the triggers for the S&P 500’s recent drop, “5% pullbacks in the stock market are incredibly ordinary,” said Bespoke.

“Since WWII, there have been 230 different periods where the S&P 500 declined 5% or more on a closing basis without a gain of 5% in between,” the firm found. “That works out to once every four months, and besides the one we’re dealing with now (so far), every one of them has been followed by a new high.”

All three major U.S. stock indexes were up on Tuesday afternoon, including the S&P 500, Dow Jones Industrial Average and Nasdaq Composite FactSet data show, at last check. Meanwhile, gold prices were modestly lower in afternoon trading, following a sharp drop Monday, while the U.S. dollar weakened.