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“You speak an infinite deal of nothing.”– William Shakespeare

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

If you missed yesterday’s segment on CNBC’s Overtime, check it out here.

Some of the positive tone from yesterday’s gain has followed through to this morning as equity futures are modestly higher and gold and oil both continue to give up ground.  Yields are higher, so we couldn’t quite get the trifecta, but two out of three isn’t bad. Earnings reports have finally taken the spotlight, and this morning’s results have been positive with encouraging reports from General Motors (GM) and UPS. After the close, we’ll hear from Tesla (TSLA), Texas Instruments, and Visa (V). On the economic calendar, today’s reports include S&P PMIs for the Manufacturing and Services sector, New Home Sales, and the Richmond Fed reports.

A lot of the noise coming from the market is ultimately meaningless, but investors crave to find a cause for every effect.  Analysts have blamed everything from the tax deadline to geopolitics, higher rates, or an overbought market.  The fact that gold and the dollar – two of the biggest haven assets – both rallied throughout much of the decline suggests that geo-political concerns could have been a large factor. If, as gold’s price suggests, these anxieties are easing, it could bode well for future market performance.

Whatever the cause, 5% pullbacks in the stock market are incredibly ordinary. Since WWII, there have been 230 different periods where the S&P 500 declined 5% or more on a closing basis without a gain of 5% in between. That works out to once every four months, and besides the one we’re dealing with now (so far), every one of them has been followed by a new high. Some new highs took longer than others to achieve, but eventually, the market got there.

Yesterday was an interesting day for the market. The S&P 500 opened higher, quickly sold off in the morning, gave up nearly all its early gains, and then rallied into early afternoon only to drift lower into the close.  For a nervous investor watching every tick, the emotional swings probably went something like the comments in the chart below.

We have no idea whether Friday’s close was the low point of this month’s decline, but what we can tell you is that yesterday’s intraday pattern is very common and the type of action you often see as the market is coming out of a low point in the decline. Going back over the last 30 years, we looked at the intraday performance of the S&P 500 tracking ETF (SPY) on the first trading day after the closing low of each of the 106-prior 5%+ S&P 500 declines.  On a median basis, SPY has gapped up 0.58% at the open, but at some point, the market tended to dip and shake out the weak hands. At the intraday low, SPY’s median decline was 0.18% versus the prior day’s close, but it tended to finish the day with a median gain of 1.75%.  Even though that first trading day after a closing low was positive, the median decline at the close from the intraday high was 0.36%. In other words, roller coaster patterns like Monday’s intraday chart frequently follow a market low.

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