The S&P 500 is down 6 points to 1914 after touching the lowest levels since May at 1908.
The index is down about 4% since the record high on July 24. Here’s why:
- Geopolitical risks are rising
- Worries about Fed hikes
What’s listed there is less important than what isn’t: Economic weakness. Numbers on the economy have generally been better and corporate earnings were okay (buybacks & multiple expansion rather than earnings are fueling the bull market anyway). Ultimately, the economy is what matters and fighting in Gaza or Syria has a negligible impact on commerce. Russia threatens to grow into a bigger problem but it’s impossible to say.
The market is conditioned to fear Fed hikes but I think that the top of the Fed’s cycle won’t be at the 3-4% range the market is expecting and closer to 1-2% and ultimately that will keep stocks moving higher.
That’s the big picture but in the short term there is also room for optimism and it comes from the technicals. The market is attempting to halt the decline at the confluence of the 100-day moving average and the 61.8% retracement of the May-July rally. The RSI isn’t yet oversold but it’s at the lowest since February (and the dip in stocks in Feb was ultimately followed by a 14% rally).
S&P 500 daily chart
