How bear market rallies trap dip buyers and frustrate investors: Morning Brief

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Thursday, June 23, 2022

Today's newsletter is by Jared Blikre, a newsman focused connected the markets connected Yahoo Finance. Follow him connected Twitter @SPYJared.

Bear marketplace rallies are the worldly of legends.

Born done a operation of conditioned dip-buying and FOMO — oregon a fearfulness of missing retired from investors — the carnivore marketplace rally's intent is to maximize capitalist pain. And these events bash it well.

The marketplace lures successful caller longs, lone to yet nonstop stocks to caller lows.

At the opening of carnivore marketplace turns, these rallies are flashy and short-lived. As the marketplace grinds lower, these rallies thin to turn bigger, much exciting, and rather deceptive.

During the Financial Crisis, the marketplace head-faked investors with 3 insignificant rallies from autumn '07 done summertime '08 — of 8%, 12%, and past 7%, respectively — suckering successful caller longs adjacent the 2007 grounds highs.

A trader works   connected  the level  of the New York Stock Exchange (NYSE) successful  New York City, U.S., June 13, 2022.  REUTERS/Brendan McDermid

A trader works connected the level of the New York Stock Exchange (NYSE) successful New York City, U.S., June 13, 2022. REUTERS/Brendan McDermid

And past markets truly started messing with investors.

Declines of 45% and 51% from grounds highs were met with rallies of 18% and 24% successful the autumn of 2008, moves that came respective months earlier the market's eventual bottommost successful March 2009.

Suddenly, headlines were reading: "Stock marketplace 20% disconnected the lows," enticing traumatized investors to perchance propulsion the trigger connected what remained of their currency presumption — lone to spot caller lows successful the coming weeks and months.

S&P 500 — Global Financial Crisis Bear Market Rallies

S&P 500 — Global Financial Crisis Bear Market Rallies

During the dot-com bubble burst, it took astir 3 years for the carnivore marketplace to yet shingle retired bagholders from the archetypal tech mania.

The S&P 500 dropped 49% from grounds highs earlier hitting its eventual bottommost successful precocious 2002. Over the people of 2001 and 2002, the S&P 500 saw nary less than 4 rallies of 19% oregon more.

It wouldn't beryllium until the outpouring of 2007 that the benchmark scale would scope different grounds high. Just successful time, of course, for the aforementioned Financial Crisis.

S&P 500 — Tech Bubble Crash Bear Market Rallies

S&P 500 — Tech Bubble Crash Bear Market Rallies

Bear markets trial investors, some connected the mode up and mode down. When the quality rhythm seems similar it can't get anymore horrifying, stocks prehend an olive branch. Perhaps it is simply a reprieve from a hawkish cardinal banker oregon a driblet successful sky-high lipid prices.

But nary substance the catalyst, carnivore marketplace rallies tin nonstop stocks disconnected to the races, and weary investors don't privation to miss out.

Rinse, repeat.

At its astir caller lows, the S&P 500 (^GSPC) was down implicit 23%, and the rallies truthful acold this twelvemonth person been shallow and short-lived. The largest was a astir two-week determination astatine the extremity of March that produced an 11% bounce for the index.

March's determination was peculiarly unsmooth for traders, arsenic this rally took retired February highs which weren't excessively acold from the S&P 500's grounds adjacent seen connected January 3, 2022. Anyone who bought that breakout was treated to a 16% nonaccomplishment implicit the adjacent 7 weeks.

This bear, it seems, is inactive young.

A little forceful 7% rally successful precocious May and aboriginal June was knocked down by ostentation rearing its disfigured head again, with a four-decade precocious for the user terms scale tipping the S&P into "official" carnivore marketplace territory.

And present we're hardly disconnected the caller lows. Again.

S&P 500 — 2022 Bear Market Rallies

S&P 500 — 2022 Bear Market Rallies

From present — if past is immoderate usher — this carnivore marketplace volition lone get trickier and much frustrating arsenic consequent rallies apt turn bigger.

"If they don't scare you out, they deterioration you out," says AlphaTrends.net laminitis Brian Shannon.

Something to support successful caput if we're sitting present astatine the extremity of June, oregon July, oregon August looking astatine the biggest rally of the year.

What to Watch Today

Economy

  • 8:30 a.m. ET: Current Account Balance, Q1 (-$275.0 cardinal expected, -$217.9 cardinal during anterior quarter)

  • 8:30 a.m. ET: Initial Jobless Claims, week ended June 18 (226,000 expected, 229,000 during anterior week)

  • 8:30 a.m. ET: Continuing Claims, week ended June 11 (1.320 cardinal expected, 1.312 cardinal during anterior week)

  • 9:45 a.m. ET: S&P Global U.S. Manufacturing PMI, June preliminary (56.3 expected, 57 during anterior month)

  • 9:45 a.m. ET: ET: S&P Global U.S. Services PMI, June preliminary (53.5 expected, 53.4 during anterior month)

  • 9:45 a.m. ET: ET: S&P Global U.S. Composite PMI, June preliminary (53.6 during anterior month)

  • 11:00 a.m. ET: Kansas City Fed Manufacturing Activity, June (23 during anterior month)

Earnings

Pre-market

  • FactSet Research (FDS) is expected to study adjusted net of $3.21 per stock connected gross of $476 million

  • Rite Aid (RAD) is expected to study an adjusted nonaccomplishment of 66 cents per stock connected gross of $5.7 billion

  • Apogee Enterprises (APOG) is expected to study adjusted net of 55 cents per stock connected gross of $326.22 million

Post-market

  • FedEx (FDX) is expected to study adjusted net of $6.86 per stock connected gross of $24.57 billion

  • BlackBerry (BB) is expected to study an adjusted nonaccomplishment of 5 cents per stock connected gross of $163.5 billion

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