It was a risk-on day for investors as stocks, corporate and emerging market bonds, commodities, precious metals all were nicely higher. The only decliners were US Treasury bonds (only slightly) and the US dollar (down 0.5%). The volatility indicator, still pretty high, declined quite a bit as investors seemed to feel it was safe to get back into the water. Stocks were up roughly 2% today.
The market’s tendency short-term should be up. We could still have a drop back near the lows of last week but I would not sell that unless it clearly broke below the old lows. That’s probably a 1 in 3 chance.
If we do see a market drop it is going to be due to one of 3 things – 1) poor economic news, 2) companies guiding analyst estimates lower or 3) bad news from Europe regarding either debt or negative growth.
Because we are certainly not out of the woods on any of those, expect to see some volatility return in September or October if it follows the pattern of last year’s scary correction in April – May. In that case, the market was up 3 of the 4 weeks following the bottom, declined about halfway back down and took off again. That is the most likely template for this market, which would be very good news if it plays out.