US equities finally showed some weakness. The S&P500 fell 3.5% on Thursday, while the NASDAQ fell 5%. Here are five things you need to know about the drop:
1) The S&P usually bounces back from large one day drops. Since the 23 March low in the S&P 500, there have been 9 one-day declines of more than 2%. On average, the S&P has gained 3.5% over the subsequent 5 days. The best gain was 10% (after the 1 April drop) and the worst was -0.1% (after the 14 April drop).
2) Fed gatherings are bad for stocks. Thursday’s big drop came a week after the Jackson Hole gathering of Fed officials. The whopping 6% daily decline on 11 June came a day after a FOMC meeting, while the 3% decline on 1 May came a few days after a FOMC meeting too.
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US equities finally showed some weakness. The S&P500 fell 3.5% on Thursday, while the NASDAQ fell 5%. Here are five things you need to know about the drop:
- The S&P usually bounces back from large one day drops. Since the 23 March low in the S&P 500, there have been 9 one-day declines of more than 2%. On average, the S&P has gained 3.5% over the subsequent 5 days. The best gain was 10% (after the 1 April drop) and the worst was -0.1% (after the 14 April drop).
- Fed gatherings are bad for stocks. Thursday’s big drop came a week after the Jackson Hole gathering of Fed officials. The whopping 6% daily decline on 11 June came a day after a FOMC meeting, while the 3% decline on 1 May came a few days after a FOMC meeting too.
- Small stocks, not tech stocks, matter for Trump. While President Trump often touts the performance of the S&P500 as a marker of success, his polling is tied much more to the performance of smaller stocks as tracked by the Russell 2000 (Chart 1). The ups-and-downs of tech stocks barely correlate with his polling averages.
- S&P valuations still stretched. Well at least judging by p/e ratios. The recent drop barely dents the valuation highs that the S&P 500 has reached since the onset of COVID. That said, other valuation measures that incorporate bond yields suggest equities are not so expensive.
- Bitcoin fell more than US stocks. It fell over 5% on Thursday which was more than the S&P500 and NASDAQ. What makes matters worse it fell 5% the day before too.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)