OVERVIEW
Markets bounced back last week, with gains across most major asset classes. The S&P 500 rose 2.43%, while the Dow added 1.35%. The NASDAQ led the way with a 3.87% jump. Small- and mid-cap stocks also gained ground, with the S&P 400 up 0.63% and the S&P 600 climbing 2.19%. Growth outperformed value, as the Russell 3000 Growth Index rose 3.20% compared to a 1.46% gain for Value.
International equities were strong as well. Developed markets (EAFE) advanced 2.81%, and emerging markets added 2.25%. The U.S. dollar slipped 0.51% for the week.
Bonds had a mixed showing. Short-term Treasuries edged up 0.08%, while intermediate-term Treasuries fell 0.25% and long-term Treasuries lost 0.58%. Investment-grade bonds slipped 0.12%, but high-yield bonds gained 0.38%. Municipal bonds were slightly lower, down 0.09%.
Commodities were mixed. Gold gained 2.69%, and corn rose 0.60%, while oil fell sharply, dropping 5.37%. Real estate was little changed, up 0.16%. Volatility fell sharply, signaling a drop in investor anxiety.
KEY CONSIDERATIONS
Measuring Tape – It’s kind of funny. In our industry, when we talk about the market’s “price action” or “price movements,” we refer to it as “the tape.” The term stems from the old practice of using ticker tape to transmit stock price information over telegraph lines.
But this week, I want to talk about a different kind of tape — a measuring tape, or ruler — that traders sometimes use to measure the market’s path.
It’s called a Fibonacci retracement. It’s based on a number sequence discovered by an Italian mathematician in the 1200s named Leonardo Fibonacci. The math behind it is a little dry, but here’s the gist: the sequence produces ratios that pop up everywhere in nature — from the spirals in seashells to the patterns in sunflower seeds. Traders noticed those same ratios tend to show up in markets, often marking points where prices pause, bounce, or reverse.
On our S&P 500 chart below, we’ve drawn these Fibonacci “measuring lines” from the late-July peak to the early-August low. The key levels — 38.2%, 50%, 61.8%, and 76.4% — are shown as horizontal lines across the chart. Think of them like checkpoints on the road back up from a sell-off.
Right now, the S&P 500 has climbed above the 76.4% checkpoint, meaning it has recovered most of its early August drop. That’s a good sign and suggests momentum is leaning bullish. The next big hurdle is the late-July high around 6413. If we break through that, the recent pullback in stock prices may be in the rearview mirror.
Now, to be clear, we don’t use Fibonacci retracements as part of our investment strategy. They’re certainly not a crystal ball, and traders don’t see them as a prediction tool either. Instead, they’re a way to spot levels that many others in the market might be watching. And when enough eyes are on the same level, those price points can take on a life of their own, at least in the short term.
That’s where our “weight of the evidence” approach comes in. One signal doesn’t change the picture, but when multiple indicators line up, the case gets stronger. And right now, the fundamentals are lining up with the technicals.
Our second chart shows that more than 80% of S&P 500 companies are beating sales expectations — one of the highest readings in a few years. Historically, this kind of strength tends to occur when business conditions are healthy and demand is solid.
The bottom line? Companies are genuinely selling more than Wall Street expected. Combine that with the market showing signs of climbing out of a retracement, and it adds conviction to the outlook.
Of course, markets can change quickly, and nothing is guaranteed. But when both the “price action crowd” and the “fundamentals crowd” are telling the same story, it’s worth paying attention.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.
The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.