Investors have remained calm during the recent stock market slump, despite the S&P 500 Index experiencing its first losing quarter in a year. However, beneath the surface, there are signs of stress emerging that extend beyond the narrowly averted US government shutdown. The concern is not the severity of the drop, but rather the increasing frequency of significant declines and the lack of substantial recoveries. In the last quarter, three out of the six days where the S&P 500 lost more than 1% occurred since mid-September, while there were only two days where the index gained more than 1%. This down-to-up ratio of three is the highest since 1994, according to data compiled by Bloomberg.
Although investors have not panicked, the increasing occurrence of big downturns and limited rebounds is causing some unease. The market has witnessed a scarcity of positive momentum, heightening concerns about the overall sentiment. The fact that there were more substantial losses than gains during the last quarter is raising alarm bells, particularly as this down-to-up ratio is the highest in over two decades. While the drop itself may not be overly severe, the lack of significant recoveries is causing stress among investors.
These emerging signs of stress in the stock market go beyond the US government shutdown scare and reflect underlying worries among investors. The frequency of large downturns and the scarcity of notable rebounds indicate a broader issue that cannot be brushed aside. The market’s sentiment has been affected by this trend, highlighting concerns about the stability and sustained growth of the stock market. Investors will need to closely monitor these developments and evaluate their investment strategies to navigate through potential turbulence in the market.