S&P 500 Index Reaches Bear Market on an Intra-Day Basis. While the S&P 500 Index is technically not in a bear market by the most widely used definition (20% or more decline based on closing prices), it is important to recognize that the index did fall more than 20% from its record intra-day high on September 20 through Monday’s low. Also consider that both the Nasdaq Composite and Russell 2000 Index are in bear markets and the average stock is down more than 20%, making this feel like a bear market. We are mindful that market weakness can be alarming and cause investors to question their strategy. However, we still view the fundamental foundation as supportive for recovery, including high employment, solid consumer spending, improved business investment trends and mild inflation that should result in a firm fundamental foundation for the stock market. We are reassured by the still-solid U.S. economic and profit backdrop and the fact that losses have already nearly matched the average non-recessionary bear market decline (24% since WWII). We will continue to provide as much insight as possible during this volatile period.
Strong Signs of Capitulation in Monday’s Trading. After the worst stock market decline on any Xmas Eve ever recorded, just 10% of S&P 500 stocks are now trading above their respective 200-day moving averages, an extreme reading only reached once since the financial crisis (in 2011). Meanwhile, the S&P 500 Index put/call ratio (a measure of fear expressed by the options market) registered a more negative reading than either the 2015-2016 or 2011 corrections. Of course no one can predict a market bottom with a high degree of confidence, but these signs of capitulation, consistent with prior major market lows, are an important part of the bottoming process.
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Index data obtained via FactSet