A Bear Market Bounce

By Connor Smith |  Friday, June 24 Reconstituting A Rally. Major indexes jumped on Friday as investors piled into stocks on the busiest trading day since the January 2021 meme stock frenzy. Each of the 11 sectors in the S&P 500 gained more than 1%. The S&P 500 index rose 3.1% for its best day since May 18, 2020. The Dow Jones Industrial Average rose 2.7%, while the Nasdaq Composite rose 3.3%. The trio of major indexes all rose on the holiday-shortened week, snapping three-week losing streaks. Total composite volume, which includes trading on the New York Stock Exchange, Nasdaq, NYSE American and NYSE Arca, hit about 9.61 billion shares—the highest such volume since Jan. 27, 2021. Back then, retail traders on social media were buying up surging shares of highly shorted firms like GameStop and AMC Entertainment. This time around the volume was spurred by less of a frenzy and more of a procedural change. Funds tracking FTSE Russell indexes rebalanced in the final minutes to keep up with its annual reconstitution. Nasdaq said its Nasdaq Closing Cross, which was used for the annual reconstruction, had a record day, with 3.31 billion shares traded representing $63.8 billion across Nasdaq-listed securities. My Review & Preview colleague Nicholas Jasinksi notes that among the noteworthy changes from the rebalancing was Meta Platforms, Pinterest, Zoom Video Communications, Netflix, and PayPal Holdings seeing their weightings in the Russell 1000 Value index rise and their weightings in the Russell 1000 growth index fall. Nick explains: The index giant uses three factors when determining whether a stock belongs in the value or growth subindex, or both. Those factors are a medium-term revenue growth forecast over the next two years, sales-per-share growth over the past five years, and a stock’s price-to-book ratio. Depending on its relative rank on those criteria, a stock can be entirely in one subindex, split evenly between the two, or, say, 90% in one and 10% in the other. Its weight in the overall Russell 1000 depends on the company’s market capitalization. Aside from rebalancing quirks, traders on Friday responded to signs that recession fears may be overblown. Oanda analyst Edward Moya noted the positive sign that the University of Michigan's surveys of consumers showed lower-than-expected inflation expectations. He also notes that the president of the St. Louis Federal Reserve, James Bullard, downplayed recession fears. Moya writes: Hopes that inflation is peaking and that the economy is still on solid footing has some investors confidently buying up heavily discounted stocks. It seems Wall Street is starting to believe that even if the economy has a recession, it will be a short one. Moya notes that the recent run could prove to be a "bear market rally," but upcoming earnings reports from Nike, Walgreens Boots Alliance, and Bed Bath & Beyond have a chance to inspire optimism. That is, of course, only if they're less pessimistic than the market expects.  Watch our weekly TV show on Fox Business Saturday or Sunday at 10 a.m. or 11:30 a.m. ET. This week, Pimco's Libby Cantrill on what to expect from Washington on inflation and chip shortages.

 

DJIA: +2.68% to 31,500.68 S&P 500: +3.06% to 3,911.74 Nasdaq: +3.34% to 11,607.62 The Hot Stock: Royal Caribbean +15.8% The Biggest Loser: Verizon Communications -2.2% Best Sector: Materials +4.0% Worst Sector: Energy +1.3%