Stocks bounce off Aug. lows, raising hopes market has seen lows

The stock market passed its biggest test so far in its first corrective phase since its last 10% drop back in 2011.

For weeks, Wall Street pros have been saying the Standard & Poor’s 500 stock index would have to go back down and retest the panic lows of Aug. 24 — the same day the Dow Jones industrials briefly plunged almost 1,100 points — before investors would feel comfortable that a short-term market low was in.

stocksWell, stocks went down close to that August low a number of times last week, including Friday morning after stocks’ initial plunge after the weak September jobs report. But then stocks reversed course, finishing sharply higher Friday. The rally continued Monday, with the S&P 500 shooting up nearly 2%, and the Dow surging 304 points.

The S&P 500 has now surged 3.3% on a closing basis the past two sessions, and that gain swells to nearly 5% if you calculate the rebound from Friday’s intraday low. The Dow has rallied 3.1% the past two sessions, and 763 points, or 4.8%, from Friday’s low.

Still, the Dow remains 8.4% off its May closing high and the S&P 500 is off 6.7% from its peak.

When you add up Friday’s big reversal and Monday’s follow-through rally, you get what looks like a short-term bottom. Whether it is “the” bottom remains to be seen. The low appears to have been put in Friday when the weak jobs number lowered the odds of a Federal Reserve rate hike this year. For now, bad news on the economy is good news for stocks, as a weaker economy means the Fed stays on hold, allowing stocks to benefit from 0% rates longer.

In pre-market trading Tuesday, stocks are down slightly. The Dow is off 35 points, or 0.2%, and the S&P 500 is 0.3% lower. But after yesterday's huge rally, those losses are mild, and the market could turn higher later and stretch the S&P 500's winning streak to six sessions.

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