S&P 500 Snapshot: Bad News Is Good News?

Includes: SPY
by: Doug Short

Key world markets got off to a bad start this week. The Abenomics roller-coaster in Japan saw the Nikkei drop another 3.72%. Major eurozone indexes finished in the red, with the EURO STOXX 50 losing 0.79%.

The S&P 500 vacillated at the open and did a double take at yesterday morning's bad ISM report for May, the worst PMI reading since June 2009. And this, of course, raised the question of whether bad news is good news. The index seemed to alternate between two views. But it was apparently helped by a Bloomberg interview with Federal Reserve Bank of Atlanta President, Dennis Lockhart. He saw the bad ISM report as evidence that the economy isn't strong enough to justify a reduction in QE. When it does happen, according to Lockhart, any adjustments will not be a major policy shift. "The high level of accommodation will stay in place." The index rallied during the final hour to close at its daily high, up 0.59%.

And, of course, Monday was the first market day of the month, which carries a slight positive bias. Consider this bit of market trivia: In the 21st century, the S&P 500 has an average daily gain of 0.01%. But the average of the first market days of the 161 months over this timeframe is 0.20%. Since the turn of the century, 53% of the total daily closes have been positive, but 63% of the monthly opening days have been positive.

Here is a 5-minute look at this month's opening day (which came in at nearly three-times the average).

Yesterday's volume was about 9% above its 50-day moving average.

The S&P 500 is now up 15.02% for 2013 and 1.72% below the all-time closing high of May 21.

For a better sense of how these declines figure into a larger historical context, here's a long-term view of secular bull and bear markets in the S&P Composite since 1871.