Stocks saw notable gains Wednesday because investors are connoting a behavior they’ve exhibited for a long time: buying dips.
The
rose 316.93 points, or 0.93%, to close at 34,137.31. The
added 38.48 points, or 0.93%, to end at 4,173.42, and the
gained 163.95 points, or 1.19%, to close at 13,950.22. The biggest gainer in the S&P 500 was
(ticker: DISH), which saw shares soar 11.0% after the satellite firm reached a “cost-effective” deal with
(AMZN) to to build a cloud-based, 5G Open Radio Access Network.
The dip in the broader stock market stretched from Friday’s intraday highs through late trading Tuesday. The Dow and S&P 500 fell 1.5% and 1.6%, respectively in that time frame. Although stocks closed lower on Tuesday, they had bounced from the lows and continued that gain though Wednesday.
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“We haven’t even seen a drawdown of more than 1%” for a few weeks, Frank Cappelleri, chief market technician at Instinet, told Barron’s. This year, “the drawdowns have been extremely marginal,” he explained. Indeed, the largest pullback on the S&P 500 this year was 4% from late February to early March. That pales in comparison to a typical technical correction of 10%. Investors have shown the propensity to buy dips as a sharply rebounding economy brings the promise of a fresh economic expansion.
Apart from the rally, positive sentiment was also evident in the breadth of the rally. The Dow saw 26 of 30 component stocks rise, and 82% of the stocks in the S&P 500 rose Wednesday.
None of this means equities are set to rally from here—stock prices already reflect a lot of economic strength. It just means that unless something happens to significantly undermine the narrative that the economy is rebounding, pullbacks could very well be minor.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
