Today was better than yesterday for the S&P 500 (SNPINDEX:^GSPC) index, which finished better than it looked for most of the trading day. The index closed down 28 points, or 0.81%, but was down more than 2% for most of morning trading. A late-day rally actually had the index of the 505 biggest U.S. stocks back to breakeven with 20 minutes remaining in the session, but then turned lower, finishing the week down 2.3%. 

Return of volatility

Older person keeping piggy bank away from someone else.

Image source: Getty Images.

Despite closing down a relatively modest amount today, the past two trading sessions have marked a return to volatility for stocks after a relatively calm couple of months. Today's close makes it easy to miss the sharp open lower, the swing higher, and then the sharp move back down to close the day. It was a choppy session that wasn't clearly headed one direction or the other.

One excellent example is Apple (NASDAQ:AAPL). Apple shares finished the trading session slightly up after spending the majority of the day down more than 3%. The stock was down almost 8% in early trading before turning higher as the afternoon wore on. 

^SPX Chart

^SPX data by YCharts. Chart includes after-hours as well as market-hours trading prices.

Megacap stocks moving the market lower

Apple was a rarity for the megacap stocks that comprise most of the weighting of the S&P 500. Of the 64 stocks that finished trading with a market cap above $100 billion today, 50 finished the trading session lower. The other three members of the trillion-dollar market cap club, Amazon.com (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT), finished the day down between 1.4% and 3.1%. 

The worst-performing S&P stock today was PayPal Holdings (NASDAQ:PYPL), down 6.4%. 

Small caps, bank stocks moved higher today

While investors were selling the biggest stocks -- many of which have done the heavy lifting for investors this year -- the other end of the index was having a good day. Of the 21 S&P 500 stocks that closed with a market cap below $5 billion, 14 finished the day higher, led by Unum Group (NYSE:UNM), which was up 8.2%. 

It was also a good day for financial stocks, especially banks. Two-thirds of the 66 financials stocks in the index closed the day higher, with all 18 of the S&P 500's banks gaining ground. The SPDR S&P Bank ETF (NYSEMKT:KBE), which tracks the banking industry components of the index, gained almost 2% today. 

Some observations

It's hard to say that there's a clear lesson, but here are some observations. It seems like investors -- or some investors, at least -- took the past two days to cash out some of the immense gains the tech giants have generated so far this year. With the market's trajectory moving lower, it's obvious that much of that money left stocks. Most individual stocks have moved lower, and the market as a whole has lost significant value over the past two days.

At the same time, there may have been some interest in many of the stocks that have gotten the short end of the stick so far in 2020. For instance, Amazon shares are still way up this year, while bank stocks are among this year's worst-performing industries:

^SPX Chart

^SPX data by YCharts

What does it mean? Sure, there was some asset rotation today as investors sold some of the giants and bought beaten-down banks and others. But this isn't wholesale "asset rotation." 

What investors should focus on right now

Investors should resist the temptation to read too much into a couple of days of trading activity. The better focus is on the fundamentals of business and the economy. 

Here's what we know. The economy continues to struggle mightily under the weight of the coronavirus pandemic, and that's unlikely to change for months to come. But there are some improvements, such as unemployment falling to 8.4% in August on the addition of 1.4 million new or recovered jobs.  

A "sideways grind" seems likely for the economy in the months ahead, as we move into the fall and face the risk of coronavirus and flu season compounding one another. Access to a vaccine is, at best, still many months away for the vast majority of Americans. That's going to put pressure on the economy, which could intensify the stock market volatility we saw the past two trading sessions. 

At the same time, keeping interest rates at record lows is now the Federal Reserve's mandate. That's likely to continue to make equities attractive, even as the economy struggles and weighs down many industries like hospitality, travel, retail, and food service. 

Could the past two days of selling turn into a full-on bear market when trading resumes on Tuesday? It's certainly possible, but with ultra-low interest rates and many of the tech giants that have sold off still producing strong financial results, it's just as likely that buyers will lead stocks higher in the days and weeks to come. 

Investors should continue to do what's proven successful: Focus on stocks as excellent long-term wealth builders and don't get caught up trying to predict short-term tops and bottoms.