Here’s how ‘rare’ the S&P 500 reverses ‘violently’ after Thursday’s inflation report – and what history shows could happen next, according to Bespoke

The US stock market was unusually volatile following Thursday’s inflation report.

“Shortly after opening, the S&P 500 index fell nearly 4% from its pre-stock market high before staging a monumental rally of more than 5%,” said Bespoke Investment Group. in a note on Friday. “Even in this kind of ‘all-or-nothing’ market environment, it’s very rare for a reversal of that magnitude.”

Stocks open sharply lower on Thursday as investors gauge a report from the US Bureau of Labor Statistics shows that inflation in September, as measured by the consumer price index, was hotter than expected. All three major stock benchmarks then reversed course, erased losses, and ended the day with strong gains.

“There have only been nine other days since 1983 when the S&P 500 fell more than 2% on the day but ended the day up more than 2%,” Bespoke said. “The most recent occurrence was over eleven years ago on 10/4/11 and before that, there have been five separate occurrences in 2008 alone!”


The chart above shows the remaining major reversals in 1987, 1997 and 2002.

“We’re not sure when or where the last bottom in equities will end, but violent moves like yesterday’s tend to happen closer to lows than highs,” Bespoke said. Bespoke said.

See: Why Stocks Hit Historically After Another Hot Inflation Report

It’s been a tough 2022 for the stock market as investors worry about the Federal Reserve raising interest rates to combat high inflation. The S&P 500 is down about 24% so far this year, based on Friday midday trading.

Read: Fed’s George calls for caution while advocating for further rate hikes

The S&P 500’s performance after Thursday’s volatility has been mixed in the short to medium term, Bespoke notes.

“One year later, however, performance has been much more stable with an average increase of 14.6% (average: 19.4%) and positive returns 8 times out of 9,” Bespoke wrote. “People often forget that long-term rallies emerge from chaos, where investors increasingly believe that the only viable path, if any, is lower.”

The US stock market fell midday Friday, with the S&P 500

down about 1.7%, the Dow Jones Industrial Average

fell 0.8% and the Nasdaq Composite fell 2.2%, according to FactSet data, last checked.

The S&P 500 has struggled to hold onto its weekly gains, with a roughly 0.8 percent decline based on midday trading. FactSet data shows the Nasdaq is on track to drop more than 2% for the week while the Dow is headed for a gain of about 1.8%, FactSet data shows, at its last check.


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