How's this for an attention-grabbing headline: "The S&P 500 had its worst April start since 1929"? That's the reality of the matter following Monday's 2.2% decline.
The silver lining is that the S&P 500 had been down as much as 3.3%, so it cut its losses by a decent margin in late trading. Nevertheless, the breach of its 200-day simple moving average, the ongoing struggles of the technology and financial sectors, the unraveling of Amazon.com (AMZN) on the back of biting criticism from President Trump, and trade tension all combined to produce a thunderstorm at the start of the month.
Today, however, the clouds have parted and some blue-chip sky can be seen.
The S&P futures are up 21 points and are trading 0.5% above fair value. If it can hold that posture, the S&P 500 will stake a claim above its 200-day simple moving average (2590) when the opening bell rings.
What happened overnight to foster the change in sentiment, which has the Nasdaq 100 futures up 72 points and the Dow Jones Industrial Average futures up 187 points?
The answer is rooted in the weakness that has been seen and a sense that the major indices -- and some of the major leadership stocks -- are due for a rebound.
There hasn't been any notable change in the news cycle. Press reports remain littered with talk of trade war concerns; manufacturing PMI readings out of the eurozone tilted toward a deceleration in March; and the political spin on NAFTA and other matters is still spinning.
At this juncture, the understanding that the news cycle remains largely the same has quelled some of the angst that got the market to this point. Accordingly, it has spurred some bargain-hunting interest driven by the notion that it isn't "new" news anymore and that a lot of negativity surrounding the latest news cycle has been priced in ahead of what should be a strong first quarter earnings reporting period.
The latest update from FactSet indicates the estimated first quarter earnings growth rate for the S&P 500 is 17.3%, which would be the highest growth rate in seven years.
That last point is key. The market has known this throughout the sell-off, which has driven the S&P 500 down 4.1% over the last month.
In other words, the market hasn't been focusing so much lately on what it will hear in the first quarter reporting period as it has been on what it fears it might hear later in the year if trade wars do break out, the Fed keeps raising interest rates, the yield curve keeps flattening, and regulatory pressure is applied to the tech leaders.
Basically, market participants have been more contemplative about how willing they are to pay up for each dollar of earnings with the Fed seemingly inclined to favor a tightening bias.
This back-and-forth price action (up big one week, down big the next) is the byproduct of a market that knows "things" are changing and that the easy money has already been made.