The stock market will get its swagger back, but there could be more selling this week as Congress wrestles with the fate of Obamacare.
Stocks were trounced Tuesday on concerns the House will not have enough votes to repeal and replace the Affordable Care Act, triggering worry that more of President Donald Trump's pro-growth policies could be delayed or derailed in Congress. It was the worst sell-off since just before the election, and the first time the market reacted negatively, amid doubts about Trump's policies becoming law.
While that was the catalyst, strategists see the potential for a continued pullback, though not necessarily a deep one. UBS equity and derivatives strategist Julian Emanuel said he has been expecting a pause and sees a 5 to 10 percent correction before stocks move higher again.
It will be important to watch how stocks trade Wednesday after Tuesday's market sold off on heavy volume. The real tell for the market will be after the House votes on health care on Thursday.
The Dow fell 238 points Tuesday, or 1.14 percent to 20,668, in its worst decline since Sept. 13. The S&P 500 lost 29 points, or 1.2 percent, its worst day since Oct. 11. The Russell 2000 small-cap index was the worst performer, losing 2.7 percent, and Nasdaq declined 1.8 percent to 5,793. Financials were the worst sector, down 2.9 percent.
Oil could be an important mover Wednesday, with government inventory data due at 10:30 a.m. ET. West Texas Intermediate futures fell to $47.34, a four month low in the risk-off environment Tuesday. WTI was down 1.8 percent, and could dip further if inventories show a larger-than-expected increase.
Detrick said the pullback was not a surprise, especially after the stock market went for so many sessions without a 1 percent or more drop in the S&P 500.
"We went 109 days without a 1 percent close lower on the S&P, which was the longest since 1995," he said. "When you have these long stretches without a 1 percent drop, the returns going out six to 12 months are actually very strong. It's kind of opposite of what you might think."
He noted there were 12 previous times since 1950 when there was a stretch of 100 days or more without a 1 percent decline. He said six months later, the median return was 6.7 percent and a year later it was 14.4 percent.
CNBC
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