Down 90%!

By David Nelson, CFA CMT

I don’t think there was a single data point on its own that sparked last week’s rally. Just enough stars aligned forcing a rush back into risk assets. In just 4 trading sessions close to half the year-to-date losses were erased.

S&P 500 1 Year

Data by FactSet

Bulls taunted with “I told you so’s,” Bears said “you’ll be sorry” but most went into the weekend happy for the relief but uncertain as to just what it means.  

Some incremental positive news that Ukraine and Russia were in communication along with a successful post Fed hike press conference helped set the stage. Add investor sentiment solidly in the bearish camp, stocks took off Tuesday and never looked back.

All of the above were contributing factors but the data point I thought stood out was something I highlighted in my post last week When the Cows Come Home.

During the bursting of the bubble some of the most popular internet stocks including Amazon (AMZN) and Cisco (CSCO) fell about -90% before bottoming. There’s something about a company losing 90% of its value that seems to wash out the shares.

Data by FactSet

On Tuesday, Covid Bubble Stock Peloton (PTON) was upgraded by Bernstein analyst Aneesha Sherman. With the stock sitting -88% off its highs the upgrade was enough to send shares up +32% in just 4 trading session. No one is suggesting that Peloton will do as well as Amazon but at least for a few days the glass morphed from half empty to half full. 

Data by FactSet

A lot of information in the chart above. The S&P broke solidly through the down trend line and now up against resistance including the 200-day moving average.

I would say for the moment Fear and Greed are balanced. However, the rally last week doesn’t erase lingering concerns. Inflation, the rising cost of capital and a news cycle one headline away from Armageddon requires improving data and continued good news to feed the beast. 

It’s a light week for data but with the Fed decision and commentary behind us any news from Ukraine good or bad will be the driving force behind price momentum.