The S&P 500 index broke out of market correction territory on Tuesday, a move that has tended to point to short- and medium-term gains for the US large-cap benchmark in the past.
The S&P 500SPX,
it rose 56.08 points, or 1.2%, to close at 4,631.60 in Tuesday’s session. The index needed to close above 4,587.77 to mark a 10% gain from its March 8 close at 4,170.70, which marked the correction low, according to Dow Jones Market Data. The S&P 500 fell into a market correction on February 22, when it finished more than 10% below its record close on January 3.
A market correction is defined as a drop of 10% but less than 20% from a recent high. A drop of 20% or more marks a bear market. According to the definition used by Dow Jones Market Data, an asset does not come out of a correction until it is up 10% from its correction low.
The following table, which excludes periods in which a correction turned into a bear market, shows how the S&P 500 has tended to behave after breaking out:
Based on data going back to 1928, the S&P 500 has seen an average gain of 11.5% a year after coming out of correction and an average gain of almost 14%, rising almost 77% of the time. The median and average returns for shorter terms were also positive.
US stocks fell early in the new year as the Federal Reserve signaled it would be more aggressive than expected in raising interest rates and otherwise tighten monetary policy in reaction to rising inflation. a maximum of almost 40 years. The S&P 500 entered correction territory just before the Russian invasion of Ukraine on February 24 and set its closing low on March 8.
Stocks subsequently rebounded as the war continued and, as the Fed has signaled, it will move quickly and aggressively, with Fed Chairman Jerome Powell opening the door for half percentage point rate hikes in the future on instead of quarter-point moves.
Stocks rose Tuesday as the 10-year Treasury yield briefly traded below the 2-year yield, temporarily inverting a measure of the yield curve that’s considered a reliable indicator of recession, though stocks have tended to hold in the medium term. as a result of past investments, show the data.
The Dow Jones Industrial Average DJIA,
finished 338.30 points higher, up 1% on Tuesday, while the Nasdaq Composite COMP,
which fell in a bear market earlier this year, jumped 1.8%. Stocks lost ground on Wednesday, with the Dow and S&P 500 snapping a four-day winning streak, while the Nasdaq lost more than 1% after back-to-back gains.
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