The Tell: Why investors shouldn’t expect a break from the stock-market whiplash, says this strategist


U.S. stocks kicked off the fourth quarter with strong back-to-back gains on Tuesday, with the S&P 500 jumping more than 5.7% off its 2022 low, helping investors claw back some of its crushing 9.3% loss in September.

Lindsey Bell, chief markets and money strategist at Ally, still thinks the strong rally to start the quarter doesn’t mean investors are out of the woods. 

“Wild moves like these can be hard to digest, but they aren’t surprising,” Bell wrote, in a Tuesday note. “It is natural for some of the biggest up days in the market to cluster around the biggest down days.”

The three big stock indexes soared for a second day on Tuesday. The Dow Jones Industrial Average DJIA, +2.80% climbed over 800 points to book its strongest two-day percentage gain since April 2020, while the S&P 500 SPX, +3.06% and the Nasdaq Composite COMP, +3.34% each jumped over 3%, according to Dow Jones Market Data.

See: History shows S&P 500’s bounce from 2022 low may not signal bear market’s end, cautions Bespoke

According to Bell, the market has been reacting favorably on days when interest rates take a breather and when economic data isn’t as good as expected, or the old “bad news is good news” thesis. 

Job openings in the U.S. fell sharply in August to a 13-month low of 10.1 million, the labor department said on Tuesday, a sign the red-hot labor market might be cooling off a bit as high inflation and rapidly rising interest rates start to rattle the economy. On Monday, the Institute for Supply Management said its closely watched manufacturing index fell to a 28-month low of 50.9% in September, its lowest level in more than two years. 

However, in a follow-up interview with MarketWatch, Bell explained that the weak economic data doesn’t necessarily mean the central bank will become less aggressive with its interest rate hiking plans. 

“Investors are viewing that as a little bit of a relief, though I don’t know that you can read into it that it’s going to lead to the Fed making a pivot or pausing policy at their next meeting,” Bell said via phone. “I think there’s still a lot to be determined before they make that call.” 

“People are kind of hanging their hat on that (Tuesday’s jobs data), hoping that means the Friday report from September is going to show a slowdown in hiring, even though hiring could still be in the positive,” Bell said.

With that, investors should remain alert to the September jobs report on Friday, she said, since it may offer a glimpse of short-term direction for equities. Friday’s employment report is expected to show the economy added 275,000 jobs in September, compared with 315,000 new positions added in August, according to a survey polled by Dow Jones.

“The expectation is that the report will be goldilocks in nature — not too hot and not too cold,” Bell wrote in her note, adding that the jobs data will need to be in line with, or short of expectations, in order for the stock market to continue higher.

See: ‘This is not healthy’: The latest advance for stocks could signal more pain ahead for markets. Here’s why

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