1 Minute Market Report August 27, 2022

Financial charts and stock exchange on a digital screen

Sankai

In today’s edition of the 1-Minute Market Report, I mentioned two key components. Friday was a very rare 37:1 down day, and we closed below the near-term support level, which means this selling should continue.

The The good news is that big dips like this usually happen near the end of a bear market, when the last remaining buyers are frustrated and head for exits. I don’t think sloping buyers have given up yet, but their ranks are dwindling as conflicting sellers continue to dominate the movement.

Snapshot from last week

This chart from Jill Myslinsky at AdvisorPerspectives tells the story. Investors started the week with concerns about what Fed Chair Powell might say on Friday. Those fears have been replaced by optimism that Powell may appear less hawkish.

Then Powell took the stage on Friday and made clear that the Fed would keep raising interest rates until inflation fell to its 2% target, even if it caused some economic pain as a result. The market was not expecting so much hawkishness and quickly sold out.

Week 8-26-22

Friday stats

Friday’s 3.37% drop was the worst 88th day for the S&P 500 since 1950. Almost all of the worse days than Friday happened near the end of previous bear markets. The average gain over the next six months was 10.4%.

8-26 Market stats

stock sector performance

For this report, I’m using Extended Segments as published by Zacks. They use 16 sectors instead of the standard 11. I find that using all 16 sectors gives a fuller picture of which market areas attract the most buying and selling interest from investors.

8-26 Stock Segments

stock group performance

For groups, I separate stocks in the S&P 1500 Composite Index by shared characteristics such as growth, value, volume, cyclical, defensive, domestic versus foreign.

8-26 group of shares

Today’s Top 10 Performing Stocks

8-26 winning shares

Top 10 worst performing stocks today

8-26 Losing Stock

last thoughts

Friday 26th August was one of the ugliest market days I’ve ever seen. The ugliest day ever was the 19th of October 1987. That was the day the market crashed 20%, buoyed by the massive computer-generated selloff, which was an unintended consequence of a popular risk management tool called “portfolio insurance.” Every selling wave started another until the last bell rang. At the time, there were no circuit breakers to stop the decline and give traders and investors time to put together their thoughts. It was practically a straight line down with no perceptible bouncing all the way through.

The second worst day was March 16, 2020, as the pandemic emerged and the economy began to shut down. The market fell 12% that day, which was after it had already fallen 9.5% a few days earlier. Circuit breakers allowed the pandemic’s 34% drop from peak to trough to spread over several weeks, with a few attempts to combine the two.

Today’s defeat at 3.37% appears moderate by comparison. Mild it was not. For every stock that was high today, 37 were down. I don’t have the numbers comparable to the 1987 crash, but they couldn’t be much worse than what we saw today.

Where do we go from here? Maybe it’s been lower for a while, but history shows that big market down days usually happen near the end of a bear market. On average, the market is 10.4% higher after six months of a day as we had it today. Even better, the market is 20% higher, on average, after 12 months. There are exceptions, of course, but history favors optimists who look into the future 6 to 12 months.

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Editor’s note: This article’s bullet point summary was selected by searching for alpha editors.

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