Stocktake: Big one-day gains are bearish, not bullish

Just as rate cuts shouldn’t be seen as a market panacea, big market gains shouldn’t be viewed as evidence that all is well once more.

The S&P 500 soared 4.6 per cent – its third-best day in the last 10 years – on Monday last week, and almost matched those gains on Wednesday.

It’s natural to cheer such advances, but remember that the S&P 500 enjoyed incredible one-day gains of 11.6 and 10.8 per cent in October 2008, five months before stocks finally bottomed.

Stocks gained at least 4 per cent in 11 sessions during the 2008-09 bear market, notes veteran strategist David Rosenberg, and there were seven such sessions during the 2001-02 bear market. Indeed, the S&P 500's 10 biggest one-day gains in history have all occurred during bear markets; the same is true of the Nasdaq index.

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Huge one-day gains are as symptomatic of financial turmoil as are huge one-day losses. Big gains and losses tend to cluster during volatile markets, so it wasn’t surprising that big gains on Monday and Wednesday were followed by big losses on Tuesday and Thursday and new lows on Monday.

Wild daily market swings are “emotionally and intellectually wearing”, complained BTIG strategist Julian Emanuel last week, but things probably won’t calm down any time soon.