Yahoo Finance Stocks are sending mixed signals, but investors shouldn't 'lose faith now': Morning Brief
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Disappointing Boeing (BA) earnings drove the Dow to a small loss Wednesday, while a surprisingly positive reaction to Tesla (TSLA) results led that stock to its best day in two years (up 12%), helping the S&P 500 and Nasdaq Composite close in the green.
Taking stock of equities as we head toward the end of April, investors are facing mixed messages from Wall Street.
After a year that defied recession expectations, the first quarter of 2024 built on last year's strength.
This year, the S&P 500 turned in the best first quarter return since 2019, rising 10%. But the stock sell-off this month has made April the worst month since last September.
Ryan Detrick, chief market strategist at Carson Group, created a seasonality map from all the election years going back to 1950 that were sitting on gains of at least 5% by the end of March: 1956, 1964, 1972, 1976, and 2012.
At first glance, 2024 is marching along to a similar playbook. And, if anything, the bout of April weakness is overdone.
There's another reason to think that any short-term rallies will be fleeting, as research from Bank of America shows.
The investment bank calculates investors' bullish or bearish bias to "buy the dip" by dividing the average return on positive days by the return on negative days.
This indicator spiked higher several times over the pandemic — once to the highest level going back at least 25 years. But now it sits at the lowest level since April 2019.
"Muted up days [versus] down days this month seem to indicate weakening support from [buy-the-dip] behavior, particularly in the context of price action since the start of the AI wave," BofA wrote in a recent note to clients.
JPMorgan's positioning intelligence team, however, sees the recent selling in April setting up a short-term buy signal, noting that sell-offs of a similar statistical strength occurred last August and October and that, historically, the S&P 500 has rallied about 3% in the 20 days following the signal.
Looking back, that August 2023 rally lasted about two weeks and was good for nearly 5% before stocks headed down in September again.
And the late-October signal nearly perfectly captured the bottom just prior to the blistering end-of-year rally.
Putting it all together, stocks are facing some headwinds into the end of May — but we might be due for a meaningful bounce near-term.
"Reviewing previous election years that started strong shows that choppy weakness could last until after Memorial Day, but a summer rally is also likely. So, don’t lose faith now," writes Detrick.
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