Rallies are getting squashed and there appears to be no lead for the stock market in recent trade.
According to Dow Jones Market Data, the Nasdaq Composite COMP, when it was up 2.1% at its peak on Thursday, ended down 1.3%, was its largest reversal for a loss since April 7, 2020. The Dow Jones Industrial Average DJIA, and the S&P 500 index SPX, both of which were trading higher, finished in negative territory.
The disintegration of a big intraday uptrend comes after the Nasdaq Composite entered a correction — defined as a decline of 10% but no more than 20% from a recent peak — for the first time since March 8, 2021, reflecting the fragility of the market as it prepares for a regime of higher interest rates and less-accommodative policy from the Federal Reserve.
Here is what history says about stock-market returns during Fed rate-hike cycles.
The intraday turnaround does not appear to be a good sign for the market's near-term prospects, as shown by the history.
The index tends to perform poorly, because of days in which the Nasdaq Composite has gained at least 2%, but ended lower on the day.
On such occasions, the composite finishes lower by 0.5% in the following session and is down 0.2% a week later.
It isn't until we get out a few months before performance improves. Three months out the return improves to a gain of 1.4%, based on Dow Jones Market Data tracking 2% intraday moves going back to 1991, while gains for the index are better, a gain of 0.5%.
Things may turn around eventually.
The last time the Nasdaq Composite rose by 2% and fell by 1% was March 20, 2020, the day before the so-called Pandemic bottom.
At least 7 signs show how the stock market is breaking down.
The equity market has been under siege due to the possibility of multiple interest-rate increases from the Fed, which meets Tuesday and Wednesday. Higher rates can have a chilling effect on investments in speculative segments of the market that rely heavily on borrowing, with investors discounting future cash flows. Talk of inflation has put a damper on the market and is one of the reasons that the Fed has to change from a regime of easy money to one of policy tightening.
Here is a stock market warning: Here is what surging bond yields say about S&P 500 returns in the next 6 months.