The market last week hurt investors coming and going.
The 5.3 percent crunch in the S&P 500 on Wednesday and Thursday took the index back to early-July levels — inflicting buyer's remorse on anyone who bid into the late-summer rally — while punishing the most popular huge growth stocks of technology the hardest.
In mid-week, an ear-splitting consensus that bond yields would keep rising drove the largest one-day withdrawal from BlackRock's $53 billion flagship iShares Core U.S. Aggregate Bond ETF (AGG) on Wednesday – just in time for bonds to rally and yields settle back a bit.
Then came Friday's rescue rally to thwart short-term traders' geared for a typical Friday flight from risk. The major indexes lost a tentative morning rally only to carry higher in the final hour of trading by 1.4 percent to recoup a quarter of the preceding two-day loss.
(Futures pointed to a higher openingon Monday.)
A week ago, the case was made here that Wall Street's bears had an openingto pressure the market in the short term, and they surely seized upon it. So with stocks down a quick 4 percent in a week in a way that confounded the crowd, which direction is the "pain trade" from here?
It's never an unambiguous call — and the market doesn't always take the path of maximum frustration for the greatest number of investors. But at the moment it still appears the pain trade is to the downside — or, perhaps most diabolically, up first and then down harder.
First, on Friday's comeback: It was impressive without being decisive. Stocks had quickly become substantially "oversold," the S&P stretched far below its trend and the vast majority of stocks primed for a bounce. The fact that the market responded to these conditions — that it "bounced when it had to" is a net positive.
Thursday's low, near 2,710 for the S&P 500, is certainly a plausible short-term low for a trading rally that can recover more of the recent losses.