When no stock-market lead is secure, this is what historical past exhibits the Nasdaq’s near-term returns appear like (it is not fairly)


Rallies are being crushed and no lead seems safe for the stock market in the last trade.

Indeed, the Nasdaq Composite COMP, -0.70%‘S
Thursday’s intraday reversal — rising 2.1% at its peak but falling 1.3% — represented the largest reversal for a loss since April 7, 2020, according to Dow Jones Market Data. The Dow Jones Industrial Average DJIA, +0.11% and the S&P 500 Index SPX, -0.37%,
which also traded higher also closed in negative territory.

The resolution of a major intraday uptrend comes after the Nasdaq Composite entered a correction for the first time since March 8, 2021 – defined as a decline of at least 10% (but no more than 20%) from a recent high – and this reflects the fragility of the market as it adjusts to a regime of higher interest rates and an overall less accommodative Federal Reserve policy.

Read: Get ready to climb. Here’s what history says about stock market returns during Fed rate-hiking cycles.

However, history shows that the intraday reversal doesn’t seem to bode well for the short-term prospects of the market.

Based on days when the Nasdaq Composite posted an intraday gain of at least 2% but ended lower, the index tends to perform poorly.

On average, on such occasions, the composite closed 0.5% lower in the following session and 0.2% a week later.

It’s only when we get out a few months that the performance improves. 30-day gains for the index are better, a 0.5% gain, while the three-month return improves to a 1.4% rise, based on Dow Jones market data, which shows 2% intraday movements since 1991 pursue.

Dow Jones market data

So things can turn at some point.

But to put the move for the Nasdaq Composite in perspective, the last time it rose 2% and fell at least 1% was on March 20, 2020, the day before the so-called pandemic low.

See: At least 7 signs show the stock market is collapsing

The stock market has been besieged, at least in part, by the prospect of several rate hikes from the Fed, which meets Tuesday and Wednesday. Higher interest rates may act as a disincentive to investing in speculative segments of the market that rely heavily on borrowing as investors discount future cash flows. Discussion of inflation has also put a damper on the market and is one of the main reasons why the Fed is being forced to shift from an easy money regime to a tightening regime.

Cashbox: Equity markets warning sign: Here’s what rising bond yields say about S&P 500 returns over the next 6 months

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