Market Extra: Dow and S&P escape correction territory after 5-day stock-market surge

A new year, a new market. The Dow Jones Industrial Average and the SP 500 exited their corrections after a multiday rally that has helped to mend at least some of the stock-market wounds of 2018.

The Dow

DJIA, +0.51%

and the SP 500

SPX, +0.45%

registered their fifth straight gains, at least partly attributed to optimism about three days of talks intended to resolve a protracted dispute over tariffs between China and the U.S., and growing signs that the Federal Reserve is ready to dial back what had been perceived as an aggressive rate-hike path.

It was concerns over trade and rising rates, and worries that global growth was receding with the U.S. was on the verge of a recession, that shattered investor confidence, and drove the stock market down from an autumn peak.

Anxieties around those matters, however, have subsided somewhat, with the Dow on the doorstep in recent days of exiting correction, at least by one measure. Comments by Fed Chairman Jerome Powell on Thursday at a fireside-chat-style discussion at the Economic Club of Washington helped to emphasize that view to investors.

A correction is usually defined as a drop of at least 10% from a recent peak. Some market-technicals purists believe that an asset must put in a new high to officially emerge from a correction phase, while Dow Jones’s data group views an exit from that phase any gain of 10% from the correction low. (Read more about market corrections.)

On Thursday, the Dow needed to finish at or above 23,971.42 to emerge from its correction by that measure.




Meanwhile, the SP 500 finished above 2,586.21 for its own correction exit, according to Dow Jones Market Data.




Thus far, the Dow has climbed 10.1% from its Dec. 24 low, while the SP 500 has gained 10.4% from that Christmas Eve low, when stocks put in the worst trading action on the trading day before Christmas ever.

Meanwhile, the Nasdaq Composite Index

COMP, +0.42%

is up nearly 13% from its Christmas Eve nadir, but that index remains squarely in bear-market territory, usually defined as a decline of at least 20% from a bull-market peak. The index would need to climb another 7 percentage points to break out of a bear market, which it entered on Dec. 21.

Thursday marks Nasdaq’s 13th day in a bear market, and it would at 14 days surpass the March 2009 bear market in longevity. That bear market lasted from March 3 to March 23, 2009. March 9, 2009, marked the bear low, according to Dow Jones Market Data.



Source: Dow Jones Market Data

Gains for equities came as oil futures

CLG9, -0.08%

LCOH9, -0.39%

, viewed as a so-called risk asset alongside stocks, broke out of a bear market, gaining 20% from their Dec. 24 nadir. Oil and stocks have moved in tandem recently, amid worries about economic expansion throughout the globe contracting, exacerbated by tensions around U.S.-China trade.

Both stocks and oil are approaching trading levels above their 50-day moving averages, which is seen by some industry participants as a further sign that a bullish trend is trying to reestablish itself (see chart below of SP 500’s 50-day moving average at 2,635.75, compared with its close on Wednesday at 2,584.96):




Bespoke Investment Group in a Wednesday research report noted that since World War II there have only been 12 other declines of 15% or more within the span of three months that were immediately followed by a rally of 10% or better in 10 trading days or fewer (see Bespoke chart below):



Source: Bespoke Investment Group

Ken Jimenez contributed to this report.

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Mark DeCambre is MarketWatch’s markets editor. He is based in New York. Follow him on Twitter @mdecambre.

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