Last week the thought was, maybe better say the hope was, that the stock market had some upside after it held above the lows of 1045 set by the Standard & Poor’s 500 stock index intraday on February 5.
I don’t think that anybody was looking for an extended rally but after the S&P held at 1072 on May 21 and then at 1067 on May 26 and then again at 1071 on June 1 the consensus was definitely looking for more than a bounce. Lots of technical analysts were calling stocks oversold and looking for a rally that took the index back to its April 19 high of 1217 or so.
That wouldn’t have been a big enough move to guarantee a continued rally but 150 points is 150 points, especially when it amounts to a gain of 13%.
And then came June 4 when the index fell 3.4% to 1065 on news that private employers hired just 41,000 workers in May and that all hiring, government and private, added up to just 431,000 jobs, a far cry from the 500,000 that economists were expecting.
So now investors go back to watching not the top of the market’s potential range at 1220, but the bottom to see if 1045, the February low, will hold.
If it does, then the month long move downward from the April high near 1220 is still just a correction. A full blown 12% correction but just a correction none the less.
If it doesn’t, then the odds are that we’re looking for another leg downward—maybe as little as 5% below 1045, maybe as much as 10%. But something worse than investors have experienced so far.
Let me say that the overnight market action from Asia isn’t especially encouraging as of 11 p.m. ET Sunday night. The MSCI Asia Pacific Index was down 3.2% at 11:13 a.m. in Tokyo and futures on the Standard & Poor’s 500 were down 1.3%. The euro was also lower, down 0.7% against the dollar.
There’s nothing much on the U.S. economic calendar likely to move the stock market until the release of the weekly figure on initial claims for unemployment on Thursday, June 10.
The big uncertainty remains the international news flow with the pessimist in me believing that we’ll see some more bad news from Europe.
Maybe not though.
Over the weekend the Hungarian government, which had warned of default on Friday, said, in essence, “Never mind. Things aren’t nearly as bad as we told you a day ago.”
To say that nobody believes any number coming out of Hungary now and isn’t likely to for a long, long time is an understatement.