Pullback or Something More?

This current market sell off is the first material pullback in the US stock market since it began advancing in the Fall of 2023. You can see from the chart below, until the recent pullback, the stock market, as measured by the S&P 500 Index, was on a tear. The recent sell-off has taken the market below its 50-Day moving average and seems to be seeking to test the 200-day moving average in the days and weeks ahead. But will it?

The market’s correction sits at just shy of -5%. As such, this could be considered a “run of the mill” pullback. If the pullback continues in this trajectory and enters a “correction” (defined as a -10% move) then the market will be very close to its 200-day moving average. Historically, market corrections that moved to the 200-day moving average experienced strong rallies as the 200-day average proved to be a strong level of support.

Given that equities currently carry a high valuation multiple, we can see the case that further downside moves are possible, particularly given the fragile geopolitical environment as well as the inflation problem. However, we do not feel that the economy is at risk of recession presently. GDP remains strong and federal spending continues apace. Afterall, this is an election year, and we don’t see congress taking away the punch bowl. As such, if we see further stock market weakness, this may prove to be an excellent buying opportunity. The risks that are lurking will likely not manifest (if at all) until 2025.

The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. The S&P 500 index is regarded as one of the best gauges of prominent American equities’ performance, and by extension, that of the stock market overall.

No investment strategy can assure success or completely protect against loss, given the volatility of all securities markets. Statements of forecast and trends are for informational purposes and are not guaranteed to occur in the future. All performance referenced is historical and is no guarantee of future results. Securities investing involves risk, including loss of principal. An investor cannot invest directly in an index.