US STOCKS OUTLOOK:
- S&P 500[1] mounts a strong recovery after last week’s punishing sell-off
- Despite positive sentiment on Wall Street[2], U.S. stocks remain biased to the downside, including the top equity benchmarks
- Market’s attention will turn to Powell’s congressional testimony on Wednesday and Thursday
Most Read: Dow Jones, S&P 500 and Nasdaq 100 Outlook for the Week Ahead – Not Looking Good[3]
After losing nearly 6% last week and posting its worst weekly performance since 2020, the S&P 500 rallied on Tuesday, supported by improving sentiment and, possibly, end of quarter rebalancing activity. In the early afternoon trade, the benchmark stock index was up 2.4% to 3,762, though it has risen as much as 2.85% in the morning.
Dip buyers are trying to take advantage of recent equity weakness and extreme oversold conditions to pick up cheapened and beaten-down shares ahead of a possible rebound in hopes that the worst may be over for now, at least until the next batch if important economic data and corporate earnings roll around.
Although the risk-on mood on Wall Street is welcome, the S&P 500 remains trapped in a bear market and maintains a negative bias based on technical signals[4] as well as fundamentals. From a historical standpoint, the S&P 500 has endured 11 bear markets since 1950. After first meeting this condition, the index typically declined for an additional 1.5 months on average before reaching a trough in the cycle and beginning to mount a recovery.
Focusing on Tuesday’s price action, it is important to underscore that there will always be brief rebounds and face-ripping rallies in any bear market before the next leg lower develops. With that in mind, traders should exercise caution to avoid getting caught
