Nasdaq Gains 3.5% in a Fit of Extreme Buying

Photograph by Kevin Dooley

The world is neither as frightening as we fear nor as safe as we hope—and that’s something investors should keep in mind as the market whipsaws from extreme losses to sizable gains.

Stocks certainly continued their winning ways last week. The Dow Jones Industrial Average advanced 562.79 points, or 2.4%, to 23,995.95, while the S&P 500 rose 2.5% to 2596.26. The Nasdaq Composite gained 3.5% to 6971.48. The Nasdaq is up 10.1% during three weeks, the largest three-week gain since 2011.

If the previous week’s rise was spurred by a suddenly patient Federal Reserve, this past week’s gain could be attributed to trade talks between the U.S. and China. Not that anything was accomplished, mind you. But the fact that the two sides are talking means they’re closer to a deal than Republicans and Democrats are to ending the shutdown.

All of which suggests that investors’ thinking is more than a bit muddled. Fears that the U.S. was heading for recession sent the S&P 500 tumbling, culminating in a 2.7% drop on Dec. 24. The index’s 10-day advance/decline line hit minus 2,440 that day—with that many more stocks declining than advancing—observes Paul Hickey, co-founder of Bespoke Investment Group. That was the worst reading since 2011 and one that suggests that just about everyone had thrown in the towel on the stock market.

The problem with selling everything is that when the world doesn’t end, you have to buy something. And that’s exactly what investors did over the next 10 days, when the 10-day advance/decline line rocketed up to positive 1,938 last Wednesday, the highest since 2016, according to Bespoke.

That 4,378-point swing from extreme selling to extreme buying was the largest on record,

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