Market Patterns Suggest the S&P 500 Will Have a Good Week

(Bloomberg) -- Come Friday, if history is any guide, the stock market will have staged a solid bounce back from last week’s drop.

The S&P 500 closed last week down 2.21%, marking its 18th weekly loss of at least 2% since the start of 2019.

But according to Instinet LLC’s Frank Cappelleri, that bodes well for this week.

Since 2019, the S&P 500 has gained an average 2.1% in the week following a weekly loss of at least 2%, with dip-buyers using the chance to swoop in. The benchmark has finished such weeks higher 12 out of 17 times --- a 71% win rate.

“It’s been rare to see extended weakness from week to week during this upswing,” said Cappelleri. “Even if it’s a failed bounce, downside volatility tends to trigger upside volatility over the short-term.”

The pattern seems like it may be starting to play out. Stocks, which dropped again Monday, rebounded Tuesday as investors shrugged off concerns over the government reaching its debt limit and continued to bet on the economic rebound out of the pandemic. The S&P 500 was trading up 1.39% as of 1:21 p.m. in New York, while the Nasdaq 100 Index rose 1.81%. 

“It seems that the market has been on a longer trend upward, and some of these weeks where we post 2% weekly losses or more have just been really blips on a longer-term trend of the S&P just continuing to shoot higher,” said Michael Reynolds, vice president of investment strategy at Glenmede.

Aoifinn Devitt, chief investment officer at Moneta Group, said high levels of cash savings from institutions and consumers will continue to support demand for equities. 

“Markets are clutching on to the narrative of a post-pandemic recovery, and that’s a narrative they’re really unwilling to shake,” Devitt said. “We can see it in the way markets bounce back whenever there is any kind of correction -- or even just a wobble.”

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