Market noise might be throwing investors off in the fourth quarter: Morning Brief

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Thursday October 6, 2022

Today’s newsletter is here Jared Blikre, a reporter focusing on the markets at Yahoo Finance. Follow him on Twitter @SPYJared.

Stocks recouped early losses on Wednesday, with the Dow posting its best first-quarter returns since 1938. Impressive, right? Traders may be tempted to think that we’ve hit the bottom and that everything is going up from here.

But before you get too excited, let’s have an open discussion about market statistics.

Headlines beginning with ‘best’ or ‘worst’ dominate the financial media today due to the many days in this turbulent year. This is to be expected when volatility rears its head. The days with the best historical returns tend to cluster with the worst. It seems that the market gods simply flip coins.

So how can you understand the markets without getting whiplash? The key is to separate real signals from all the noise. And while the public is focused on price swings, most of them are just noise.

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True signals are rare and can be difficult to identify. Take the current price action. We started the week with a two-day gain, marking the first time the S&P 500 had posted consecutive gains of over 2.5% since the global financial crisis in late 2008.

Back then, the big gains from the resulting bull market came much later a cluster of “signals” in 2008 – meaning that this information may not have been as useful to investors trying to time the bottom.

S&P 500 during the global financial crisis

S&P 500 during the global financial crisis

First, September 2008 saw two consecutive days of gains of 2.5% – fairly early in this bear market. But buying this event was a clear loser as the index immediately reversed sharply lower.

Then came three sets of similar consecutive wins in late November and early December. It is conceivable that these were close enough to the bottom that they could have been useful for longer-term traders. But had investors bought right after those gains, they wouldn’t have made money until about five months later — an eternity for shorter-term “advertisers.”

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Traveling even further through market history, we see two instances of this two-day 2.5% surge signal after the dot-com bubble burst in 2000. One instance came close to the all-time high in April 2000, the other in October 2002 – two years later – caught the price low perfectly.

S&P 500 during the bursting of the dot-com bubble

S&P 500 during the bursting of the dot-com bubble

Getting back to the fourth quarter of 2022, we’re all waiting for the inflation data to cool off so the Fed can halt rate hikes. This certainty could calm the markets and point the way for them to climb steadily again. When a clearer picture emerges, we’ll all need cash to buy what many see as a generational opportunity to get stocks cheap.

You could buy now. And that’s fine if you’re investing according to a predefined investing or trading plan. But the riskiest move we can take is to grab the headlines and burn our liquidity before this bear finally decides to hibernate.

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What to see today

economic calendar

  • 7:30 a.m. ET: Challenger job cutsYoY, September (30.3% MoM)

  • 8:30 a.m. ET: Initial jobless claimsWeek ending October 1 (203,000 expected, 193,000 last week)

  • 8:30 a.m. ET: Ongoing ClaimsWeek ending September 24 (1.387 million expected, 1.347 million last week)


  • angiodynamics (ANGO), Conagra (KAG), constellation marks (STZ), Levi Strauss (LEVI), McCormick (MKC)

Yahoo Financial Highlights

Labor shortage: “You have to start thinking that robots can do some of these jobs,” says the expert

Real estate “brought to its knees by the Federal Reserve,” says the expert

Elon Musk’s latest 180 deals another blow to Donald Trump’s burgeoning media company

Oil: “We will see $65 before we see $100 in WTI,” says analyst

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