The accepted range of what market participants refer to as “correction territory” is down 8%-10% from recent highs. All three major indices had fallen into that range by October 23rd, with the Dow having fallen -8.7%, and the S&P -9.8% but only the NASDAQ had fallen below the lower band of the correction range, -10.2%. Thursday brought about a monster rally leading some to speculate that all the market wanted was for the leader, the NASDAQ, to get to that lower correction band. As of this writing, that theory has not held up. The futures are looking like another leg down is in store with the Dow and S&P futures down near -1% and the NASDAQ near a -2% drop. Even a stronger than expected annualized U.S. GDP growth rate, +3.5% versus expectations of +3.3%, doesn’t seem to help, as it stokes fears the Federal Reserve will continue on a path of rate hikes meant to keep future inflation in check. Indeed consumer spending did rise more than expected, but prices seemed to moderate. Personal consumption expenditures rose more than expected as well +4.0% while the core PCE deflator (a measure of consumer prices, missed expectations, coming in at +1.6% versus a survey average of +1.8%.
End in sight?
Volatility ranges of 1% or more in either direction happen most often in October and many individual stocks, as well as all the stock indices, are below their 200-day moving averages. This makes it unlikely that any market calm arises at least until we the major indices above that key MA. According to research done by Ryan Detrick, Senior Market strategist at LPL, of the 30 largest one-day moves in either direction for the S&P 500 since 1050, 26 of them have happened when the index was below the 200-day MA. Considering the mid-term elections are on November 6th, it may be difficult for the market to find a solid, low-volatility base before then.