Holidays don’t dampen volatility. Despite a shortened trading day on Monday and the market being closed Tuesday, investors have struggled to make sense of the market’s direction over the past week, as >1% moves and wild intraday swings have become the norm. On a technical basis, the S&P 500 Index has bounced off the 2350 level, which represents the spring of 2017 lows, but it will have to battle resistance around 2600, where previous support was broken. It is important to remember that repairing technical damage like we have seen over the past few months will likely take some time, but in the short-term we are seeing some oversold conditions, including the percent of the S&P 500 components above their 200-day moving average (recently reached 10%; under 20% would be considered extreme) and more than half the index trading at its lowest level in the past year.
What’s going on with stocks? If you’re still trying to figure out what’s driving the recent swings in major U.S. indexes, you’re not alone. From the S&P 500 Index falling at least 1.5% in six of the seven sessions leading up to Christmas, followed by its biggest one-day point gain ever, followed by the biggest intra-day reversal since 2010 in yesterday’s session, it’s been quite a ride over the past couple weeks. Recent articles cite a variety of drivers including: portfolio rebalancing into year end, tax-loss selling, limited volume, a scarcity of any news. However, for long-term investors with disciplined strategies, understanding the causes of short-term swings can be an exercise in futility. As one trader stated (and we concur), “I remain invested through good times and bad. Not being invested, over the long term, is like betting against the house in a casino.”
Our take on the downdraft. Market participants have had a lot to digest lately, including the risk of a policy mistake by the Federal Reserve (Fed), the China trade dispute, a government shutdown, cabinet-level departures from the White House (notably Defense Secretary James Mattis), the United States’ decision to pull troops out of Syria and Afghanistan, and communication mishaps by the Fed and Treasury Secretary. In our next Weekly Market Commentary, due out Monday morning, we offer some historical perspective on the latest market downdraft that-though technically not a bear market by our definition–sure felt like one. We also include our latest thoughts on stock fundamentals, the Fed, the government shutdown, and whether Christmas Eve marked a major market low. We will preview the commentary later today on the LPL Research blog.
House plans government funding vote for next week. Looking to avoid an elongated shutdown, House Democrats-who take control of the House on Wednesday-are weighing three funding options. One is a stopgap measure to fund the government into February, another stopgap would fund it through September, or they may propose a bipartisan, yearlong bill. The vote would likely take place next Thursday, though it’s unclear how the GOP majority in the Senate will follow. As we’ve noted previously, markets tend to ignore shutdowns, and we see next summer’s debt ceiling debate, should it be necessary, to be a more important issue when interest payments on Treasury securities are at stake.
- Wholesale Inventories (Preliminary, MoM, Nov)
- Retail Inventories (MoM, Nov)
- Pending Home Sales (MoM, Nov)
- Germany CPI Report (Preliminary, Dec)
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Index data obtained via FactSet
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