Time For a More Significant Pullback Or Correction? | Daily Market Update

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Wednesday, July 21, 2021

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Time for a more significant pullback or correction?

Stocks have had an amazing run, but here are some things to consider.

  • The S&P 500 Index hasn’t had a 5% pullback since last October, right before the election, one of the longest such streaks ever.
  • The S&P 500 has averaged about three separate 5% pullbacks per year since 1950.
  • In fact, the index hasn’t had a 10% correction since March 2020 and it has averaged exactly one 10% correction per year since 1950.
  • We’ve previously noted some concerns including: a weak Q3 historically, the lack of any pullback after a 90% rally, weakening internals, and some pockets of excessive optimism.

We will discuss this concept more in depth later today on the LPL Research blog.

Daily Insights

US equities little changed after yesterday’s big rally

  • Market participants are focused on positive second quarter earnings reports amid concerns of increased Delta COVID-19 cases.
  • European equities are higher through midday trading ahead of tomorrow’s European Central Bank (ECB) policy meeting, with the ECB expected to continue quantitative easing efforts.
  • Asian markets posted a mixed close amid a positive South Korea July export report.

Turnaround Tuesday

After the worst day of the year for the Dow and one of the worst of the year for the S&P 500, stocks bounced back nicely yesterday.

  • As we mentioned in the technical note below, the S&P 500 once again found support at the upward sloping 50-day moving average.
  • It was the third consecutive time the S&P 500 fell 1%, then bounced back with a 1% gain.
  • The previously beaten up areas like banks, small caps, and cyclicals all had large bounces.

Technical update

  • Stocks surged back yesterday, with the S&P 500 bouncing off its 50-day moving average yet again and recording its best day since March 26.
  • The advance was broad-based, as advancers outnumbered decliners by more than 9:1 on the NYSE.
  • The Russell 2000 also bounced off support near 2100 and gained 3%, its best day since early-March.

Midyear Outlook 2021 has launched. While the speed can be exhilarating as economic growth accelerates, it can also be dangerous. Midyear Outlook 2021: Picking Up Speed is designed to help you navigate the risks and opportunities brought upon by the economy’s reopening for the rest of 2021 and beyond. For more information, please read our Midyear Outlook 2021.

Street View Midyear Outlook 2021

In the latest LPL Street View video, LPL Financial Chief Market Strategist Ryan Detrick takes a closer look at what the LPL Research team thinks is coming in the second half of 2021, with a special focus on the economy, policy, stocks, and bonds.

LPL Research in the Media

LPL Financial Chief Market Strategist Ryan Detrick joined Yahoo! Finance recently to discuss market trends. He was also quoted in Axios.

Midyear Outlook 2021: Picking Up Speed

LPL Research provides an overview of their forecasts on the economy, policy, stocks, and bonds for the rest of 2021 and beyond. Learn more in this week’s Weekly Market Commentary.

Mr. Powell Goes To Washington | LPL Market Signals

In this week’s LPL Market Signals podcast, LPL Research’s Chief Market Strategist, Ryan Detrick and Equity Strategist, Jeff Buchbinder discuss the start of earnings season, policy, and more.

 

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