Stocks are bad at holding early gains lately. Can they avoid this six-year milestone?

By Joy Wiltermuth and Joseph Adinolfi

The S&P 500 needs to end higher on Thursday to avoid a four-day streak of opening green, but closing red

U.S. stocks have been prone to head fakes lately - with equities opening higher in the morning, only to lose a grip on those gains and close lower.

The S&P 500 index SPX on Thursday looked poised to repeat the jittery pattern for a fourth straight session, rising in the morning session only to see an afternoon slump into negative territory.

A lower close on Thursday would mark the S&P 500's longest such streak of reversals since March 15, 2018, according to Dow Jones Market Data.

"It feels like the market is walking on the edge of a razor," said Richard Steinberg, chief market strategist at The Colony Group. He pointed to geopolitical tensions, mixed economic data and concerns about higher-for-longer interest rates all as factors driving ructions.

"What's happened, especially in the past five months, is that we've seen a nice uptrend, without a tremendous amount of volatility," Steinberg told MarketWatch. "All of the sudden, volatility is back, and people forget that markets are going to be volatile, and you get paid a premium to own stocks over other risk-free assets with less volatility."

Ryan Detrick, chief market strategist at Carson Group, has also been monitoring the trend for clues about what happens next in stocks. He found only 20 other examples since 1990 when the stock market opened higher only to close lower for three consecutive sessions.

Detrick told MarketWatch in emailed commentary that stocks typically lose their ability to sustain early gains when a prolonged uptrend encounters a stretch of weakness.

"This is a clue that, in the near term, the bears are in control," Detrick said.

The data bear this out. Detrick found that one month later, the S&P 500's average return is -0.6%, with stocks trading higher just 55% of the time. Returns further in the future are slightly stronger, with the S&P 500 up 7.8% on average with an 80% hit rate.

"In general, it's a sign of exhaustion in the market after a great five-month run," said Kevin Gordon, senior investment strategist at Charles Schwab, in a phone interview.

Before April, the S&P 500 posted one of its best quarters in the postwar era - seeing a nearly 30% rally from its Oct. 27 closing low, before hitting its recent patch of turbulence.

Schwab's Gordon said the recent bumpy patch for stocks wasn't surprising, given that many individual components of the S&P 500 already were down 10% in the year's first three months and technically in a correction, even though that has yet to translate to a similar slump at the index level.

"You'd already seen all of this weakness happen," Gordon said, noting that it was occurring under the surface. "We've been in a rally ever since November," he said, adding that recent weakness "is normal, and needed."

-Joy Wiltermuth -Joseph Adinolfi

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04-18-24 1357ET

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