Signs Point to a Bottom

By Nicholas Jasinski |  Thursday, May 12 Need Some Luck. Stocks whipsawed today, opening in the red, rising sharply, falling through the afternoon, then rallying into the close. The Nasdaq Composite managed a slim gain of less than 0.1%, while the Dow Jones Industrial Average lost 0.3%. The S&P 500 slipped 0.1%, narrowly avoiding closing in a bear market—a decline of at least 20% from its January peak. The index is at its lowest levels since March 2021. The trading day began with the latest data showing that high inflation is sticking around in the U.S. The producer price index rose 11% year-over-year in April. That was just below March's 11.2% rate and higher than economists' average estimate of 10.7%. Inflation may have peaked, but it's still plenty elevated. Rising costs for producers are a concern in the near term because they crimp companies' profit margins, while in the medium term they turn into consumer inflation if firms raise their prices. That's fuel for more or faster interest rate hikes by the Federal Reserve, which weigh on stock valuation multiples and risk tipping the economy into a recession. Over in the bond market, yields are getting high enough to attract buyers. The yield on the 10-year U.S. Treasury note has fallen well below 3% again, finishing around 2.8% today. That round number has proven a resistance point for the yield several times in recent months. The pullback in bond yields has helped the growth stock-heavy Nasdaq over the past few days. And the declines in the Dow and S&P 500 have been getting smaller by the day. J.P. Morgan strategists pointed out today that investor sentiment indicators and fund flows are beginning to show signs of "capitulation." There's still plenty of room to decline to extreme levels seen during the March 2020 selloff, but the sharp dip in stocks over the past few weeks could also begin attracting buyers. A bottom in stocks may be approaching, at least for the time being. Tomorrow—Friday the 13th—would be an opportune time for investors' luck to change. According to Dow Jones Market Data, the S&P 500 has risen on four straight Friday the 13ths dating back to 2019. Hey, it's something.

 

DJIA: -0.33% to 31,730.30 S&P 500: -0.13% to 3,930.08 Nasdaq: +0.06% to 11,370.96 The Hot Stock: Tapestry +15.5% The Biggest Loser: Constellation Energy -6.6% Best Sector: Communication Services +1.1% Worst Sector: Technology -1.0%