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2 Charts Show Why the Stock Market Sell-Off Isn’t Over Yet
The roar stock market recovery 2024 has finally come to a halt.
The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) counted their worst one-day drops since 2022 on Wednesday and extended those losses on Thursday. Over the past 10 days, the benchmark S&P 500 index has fallen about 3%, while the Nasdaq has dropped more than 6%.
The recent pause in the rally is in line with equity strategists’ predictions in our recently released report third volume of the Yahoo Finance Chartbook. Truist co-chief investment officer Keith Lerner noted that in years when the S&P 500 has risen more than 10% in the first half of the year, the second half typically sees an average pullback of about 9%.
Through the end of June, the S&P 500 was up about 14%.
“This choppy market action of late, which we were anticipating, likely still has a long way to go in terms of price and timing,” Lerner wrote in a note to clients on Thursday.
Technology has been the clear leader of the recent market selloff. Information Technology and Communication Services are the only two of the 11 sectors in the S&P 500 with negative returns over the past month. In an interview with Yahoo Finance, Lerner argued that the recent selloff in Technology made sense given how high the sector had climbed.
In late June, technology outperformed the S&P 500 on a rolling bimonthly basis for the highest rate since 2002, according to Lerner’s research. Lerner argues that like a rubber band that gets stretched too far, there’s often a quick return from extreme levels of outperformance in markets.
“When we’re so stressed, a little bad news can make all the difference,” Lerner said.
The “little news” came via earnings reports from Alphabet (GOOGL, GOOG) It is Tesla (TSLA) after the bell on the Tuesday before Wednesday Sale. Lerner noted that the earnings weren’t bad, but they didn’t impress investors, who had a high bar for performance heading into this reporting season.
Apple Profits (AAPL), Goal (GOAL), Microsoft (MSFT) and Amazon (AMZN) expected for next week will prove the next test for investor sentiment in the technology sector. Lerner reasoned that after the market has rebounded in recent trading sessions, there is a chance that the latest wave of tech earnings could exceed investors’ now-diminished expectations.
“I think the secular story of this bull market is still intact,” Lerner said. “The money will come back in. I just think it’s more likely that you need a period of rest and some kind of pause that cools you down.”
Traders work on the floor of the New York Stock Exchange during afternoon trading on April 2, 2024, in New York City. (Michael M. Santiago/Getty Images) (Michael M. Santiago via Getty Images)
BMO Capital Markets chief investment strategist Brian Belski also highlighted the likelihood of a pause in the recent rally in stocks. edition of our Chartbook. Similar to Lerner’s analysis, Belski’s work shows that going back to 1949, the second year of a bull market sees an average pullback of about 9%. The most recent bull market began in October 2022.
The story continues
Belski told Yahoo Finance on Tuesday that the market was “ripe for a pullback from a sentiment perspective.” But for Belski, this is a “buying opportunity.” His research shows that markets typically recover an average of 14.5% from the bottom of the second-year bull market declines he has studied.
“Inventories will be higher later in the year,” Belski said.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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