As investors try to figure out if the market has reached its bottom, analysts at Jefferies Equity Research & Strategy issued a weekend note in which they pointed out that the recent pace of the market’s rise has been so fast that it would historically precede a major move in the market. However they noted that move could be in either direction, up or down.
Through Friday, the S&P 500 has jumped more than 13% off of its 2022 closing low of 3,666.77, on June 16th.
The S&P 500 continues to trade in a bear market after dropping over 20% off its Jan 3rd record close. However the Dow Jones Industrial Average made it above the level, 32,877.66, which would mark its exit from a market correction, before losing the early gains on Monday. The Nasdaq Composite also temporarily broke through the level, 12,775.32, which would normally signal its exit from a bear market. The Dow ended Monday with a minor gain, while the S&P 500 and Nasdaq ended 0.1% lower.
But Jefferies analysists, including Andrew Greenebaum, were focused on the large-cap benchmark S&P 500’s over 7% rise the last four weeks, that they labeled, “dangerously close to extremely interesting from a signal perspective,”
A gain that broke through 8% over four weeks would make a two-standard deviation rise for S&P 500 rallies, based on data going back to 1990. They noted that would mean the market would not need, “much more juice” to enter statistically significant territory.
They noted that in the 17 times the S&P 500 hit that threshold, it then went on to performance that, “looks massive,” averaging 9% in gains over the next six months. However they added the caveat that there were also several occasions when the market saw double digit losses as well. And they noted, that was especially common when the six prior months were negative, as would be the case in this instance, saying, “the likelihood of positive returns drops precipitously.”
Their takeaway was that, “while the seemingly unstoppable bounce may lure folks in, there is still a strong chance it’s just a (quite tradeable) bear market rally.”
