U.S. Stocks Could Be Headed for a Fall

Four recent stock swoons have something in common: Almost exactly two months after the declines, stocks plummeted again.


Photo:

Richard Drew/Associated Press

If the past is any indication, U.S. stocks may be in for a drop in the coming days.

Four recent stock swoons have something in common: Almost exactly two months after the declines, stocks plummeted again, retesting their recent lows. In 2010, 2011 and twice in 2018, the S&P 500 dropped sharply, recovered, then stumbled again around 55 days later, according to an analysis by

Morgan Stanley

Investment Management.

For instance, the drop in summer 2011 that coincided with ratings firm Standard & Poor’s decision to downgrade the U.S. credit rating left the market at its lowest point in months on August 8. By early October, that level was retested, Morgan Stanley research noted.

This year, a drop in the S&P 500 started at the end of April and hit bottom—with the index off roughly 7%—in early June. Two months from that trough is early August.

The historical pattern gives anxious analysts even more reason to be wary of the S&P 500’s recent climb. The S&P 500 is up 21% in 2019, ending Friday at its 13th record close of the year. The index is now trading far above the levels at which many analysts predicted it would end 2019. That has many anticipating a pullback in the coming months.

Still, when asked for a reason stocks could turn lower, many analysts are at a loss. The main driver of U.S. stocks’ recent climb has been the belief that the Federal Reserve will provide support for markets in the form of an interest-rate cut. The Fed is widely expected to announce a cut during its meeting later this week. Second-quarter earnings are topping analyst expectations. However, those estimates were beaten down heading into earnings season.

At this point, U.S. stocks are sleepily climbing higher, with dampened volatility. It remains to be seen if August shakes things up.

Write to Corrie Driebusch at corrie.driebusch@wsj.com

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