9 Charts We Are Watching

Market Blog Posted by lplresearch

Wednesday, October 20, 2021

Here are a handful charts that caught our attention recently.

Yesterday was the 34-year anniversary of the Crash of ’87. To this day market pundits still don’t quite agree on what caused the crash. As only Art Cashin can scribe, here were some of the worries at the time that lead to the more than 20% one-day crash on Black Monday: a historically overbought market (the S&P 500 Index was up more than 40% for the year in August); worries over a currency war with Germany; a historic storm in London that closed markets the Friday before the crash, concentrated selling on the New York Stock Exchange; First Lady Nancy Reagan possibly being admitted to the hospital with breast cancer; and even potential worries over engaging with Iran. At the end of the day, stocks up more than 40% for the year in August was likely much of the trigger, as that is a very stretched rubber band.

The S&P 500 finally pulled back 5% a few weeks ago, after not doing so for nearly a year. But remember, the great majority of the stocks in the S&P 500 have already corrected at least 10%, with many down even more. This rolling correction has done a number on overall investor confidence though. According to the Bank of America Global Fund Manager Survey, managers were the least bullish they’ve been since October 2020 and cash levels hit the highest level in 12 months. “It might be cliché to say, but many managers moved to cash on the 5% pullback, leaving plenty of cash on the sidelines to eventually push stocks higher again,” explained LPL Financial Chief Market Strategist Ryan Detrick.

As shown in the LPL Chart of the Day, historically the S&P 500 forms a major low near the end of October and has a nice rally to end most years.

Building on the late October period, remember that the last few days of October and first few of November are historically one of the most bullish periods of the year.

A post-election year tends to see stocks bottom a tad earlier in late September. So far, this year is following this template nicely.

November is quietly one of the best months of the year. In fact, it is the best month since 1950 and over the past decade. The past 20 years it is the second best month and in post-election years it ranks second as well. “No matter how you slice it, November is known for turkeys, but maybe it should be known for bulls as well,” exclaimed Ryan Detrick.

The S&P 500 is less than half a percent away from its first new high since September 2. Remember, it has made a new high every single month so far this year. Should it make another new high in October it could remain on target to join 2014 as the only year to have a new high every single month.

(Trivia stat – The S&P 500 peaked on September 2 in 2020 before a near 10% correction over the following weeks. This year it also peaked on September 2, but it is looking like 5% may be the most we’ll see to the downside this time.)

Speaking of new all-time highs, the S&P 500 has made 54 so far this year, one of the most ever. The record of 78 appears to be safe, but with a late year rally this year could go down as the second most ever.

As we noted at the start of the month, stocks have historically done quite well in October during an odd numbered year—years without an election around the corner and no pre-election jitters. Well, 2021 is following suit once again, as the S&P 500 is already up nearly 5% for the month, which would be the best month of October for the index since 2015.

So there you have it, 9 charts we are watching closely as we wind down 2021.


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