September 26, 2023

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Nasdaq prepares to end bear market, Dow to exit correction after July CPI data

Nasdaq prepares to end bear market, Dow to exit correction after July CPI data

The Nasdaq Composite was on its way out of a brutal bear market on Wednesday, while the Dow Jones Industrial Average is set to end a market correction, as stocks rallied following a cooler July inflation reading.

Nasdaq Composite,
+ 2.35%
It rose 2.5% near 12,810 at midday. According to Dow Jones market data, a finish at 12,775.32 or higher would represent a rise of 20% or more from the Nasdaq’s June 16 closing bottom at 10,646.10, meeting the widely used criteria for getting out of a bear market (see chart below).

The Dow DJIA,
+ 1.45%And the
Meanwhile, it rose nearly 540 points, or 1.6%, near 33,315 points. A finish above 32877.66 would see the blue-chip gauge, which avoided a bear market, rise 10% or more from the bottom of the correction.

Stocks were finding support after that Core CPI for July showed a better-than-expected slowdown in price increases. But some market watchers have been wary that everything seems too obvious based on indicators that cross an arbitrary threshold.

“One of the most enduring signals when we leave a bear market is when 90% of S&P 500 stocks advance through their 50-day moving average, and then move toward breakout velocity,” Quincy Crosby, chief global strategist at brokerage LPL Financia, told MarketWatch. By phone on Tuesday.

According to Dow Jones Market data, as of Monday, only 77.3% of the S&P 500 SPX,
+ 1.83%
Shares and 74.2% of the Nasdaq Composite,
+ 2.35%
Stocks closed above the 50 day moving average.

We see: We are in a bear market rally and you can expect to break the lows in June 2022

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The Nasdaq fell 33.7% from its recent high to a market low, and has been in bear market territory for 107 trading days. The decline represented the deepest and longest bear market since 2008, when the index fell 54% and lasted 218 trading days, according to Dow Jones market data.

As for the other indexes, of course, it’s the S&P 500 SPX,
+ 1.83%
– The standard of big US capital – this is really important when it comes to US stocks. The index also bounced, but it’s still in a bear market After completing a segment with more than 20% of its final record on January 3rd.

Michael Wilson of Morgan Stanley, one of Wall Street’s most vocal bears, argued that the better part of the rally was over.

“The rally in equities has been strong and investors have been thinking the bear market is over and looking for better times,” the chief investment officer said in a note to clients on Monday. However, we think it’s too early for it to be entirely clear just because inflation has peaked. The next low may have to wait until September when the negative operating leverage thesis is better reflected in earnings estimates. However, with extended evaluations, we think the better part of the hike is over.”

We see: Veteran strategist Dennis Gartman says it’s still a bear market with no Fed pivot in sight

Meanwhile, the Dow Jones Industrial Average DJIA,
+ 1.45%And the
The popular gauge of the so-called 30 leading companies, not only has it avoided a bear market, but is trading on the cusp of exiting its correction territory. The Dow did not suffer a fall of 20% – the arbitrary market used in the popular definition of a bear market. It slipped more than 10% from its record end in early January, however, and qualified for a market correction.

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We see: The stock market rally is about to signal a ‘huge’ move – but there is a problem

What does history tell us?

So what does history tell us about the Nasdaq if it enters bull market territory, and what does it say about the Dow when it leaves a correction?

Market data from Dow Jones compiled the tables below:

Nasdaq performance after entering a bull market.

Source: Dow Jones market data

The table below is based on all corrections since 1950, but excludes corrections that later turned into bear markets.

Source: Dow Jones market data

DJIA’s last 20 patches and next performance

Source: Dow Jones market data