Stocks have retreated lately, with the S&P 500 falling below its 50-day moving average for the first time in over four months. Is this indicative of further weakness?
Usually, no. Since 1990, there have been nine occasions where the index fell below its 50-day average for the first time in over four months. A month later, notes the Carson Group’s Ryan Detrick, it’s been higher eight times. A year later, stocks gained on all but one occasion, bagging above-average returns of 14.1 per cent.
Recent weakness isn’t surprising. Historically, notes Bespoke Investment, August has “usually been the lousiest” in the years when the S&P 500 was up at least 10 per cent through the end of July.
[ The odds are against high-flying NvidiaOpens in new window ]
Detrick makes the same point. Weeks ago, he cautioned that things were looking “dicey”, with bears turning bullish just as stocks were entering a seasonally weak period (not only can August be tricky, September has historically been stocks’ worst month).
‘A guy who was well respected around town’: The catastrophic story of Custom House Capital and Harry Cassidy
Will I lose out on UK pension because of UK revenue delays?
Web Summit founders Paddy Cosgrave, Daire Hickey, David Kelly set for High Court showdown
Investors seeking refuge from the not-so-magnificent seven
A nervy period is arguably overdue, given the absence of any sort of pullback since February. Overall, recent weakness is perfectly normal, says Detrick, and likely to be a mere “pause before an end-of-year run”.
