If Thursday’s losses continue, it would be the S&P 500’s longest losing streak since the three-day losing streak that ended July 19.
is on track for worst three-day decline since July. Is the sky beginning to fall?
It definitely looks ugly out there. S&P 500 futures were down 0.6% Thursday morning, indicating an opening loss of around 28 points, or 0.6%, for the index. That
Dow Jones industry average,
in the meantime a decline of 237 points or 0.7% per futures markets could be targeted.
If losses continue, it would be the S&P 500’s third straight decline, the index’s longest losing streak since the three-day losing streak that ended July 19. At this rate, the index would lose around 2.4% over a three-day period, also the worst since that July tumble.
If you want reasons for the decline, there are plenty. Taper fears are high on the list, despite the fact that the Fed has been transparent enough that it will end its bond purchase program as soon as possible. (Can a big article in the Wall Street Journal titled “Fed Officials Weigh Final Stock Purchases By Mid-2022” be any more obvious?)
But history shows that markets react to changes in monetary policy – even when they know the change is imminent, says Peter Boockvar of the Bleakley Advisory Group. “[We] need to be reminded of how stocks have responded to EVERY SINGLE change in Fed policy towards tightening since 2010, ”he writes. “Outside of the August 2015 sell-off in the context of the moderate devaluation of the Chinese yuan and the crash caused by Covid, every notable correction in stocks has been surrounded by a change in Fed policy towards tightening.”
Concern about Covid continues to mount, whether there are cases forcing a closure in New Zealand or reports that vaccines against the Delta variant are not as effective as originally thought. Again, none of this is terribly new, but then again, the market decides when to react, not people with a keyboard.
However, if you listen to the roar of the road, you get the feeling that the market is due for a correction. There is some truth in that. The S&P 500 has been more than 8% above its 200-day moving average for 198 days, the longest in 40 years and below the five longest stretches in history. These streaks typically follow a few months of troubled trading with an average profit of only 0.3% over the next two months. “As it hit current length, other super-strong trends took a break from buyers,” writes Jason Goepfert of Sundial Capital Research.
Of course, it might not be until August, says DataTrek’s Nicholas Colas. He notes that the S&P 500 has typically seen a 1% move up or down every week since 1957, but only three for the first seven weeks of the third quarter. August would be a good time to catch up given its low volume and history of higher volatility.
This is especially true if the stocks contract again. “[As] As much as we like US stocks, we have to respect both the band (suddenly higher correlations) and seasonality (volatility in late August), ”writes Colas. “Both tell us to be careful for the next 2-3 weeks.”
So buckle up. Whatever the reason, it’s time for US stock markets.
Write to Ben Levisohn at [email protected]