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Bank of America has warned of a hard landing if the S&P 500 falls below its 200-day average.
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Bank of America said a drop below that level could trigger a 10% correction.
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Key sectors such as semiconductors and big tech need to hold support levels to avoid further declines.
Investors can expect the economy to experience a hard landing. S&P 500 It fell below a key technical level, according to a note on Thursday. Bank of America strategist Michael Hartnett.
Hartnett highlighted the S&P 500’s 200-day moving average as a key dividing line for whether the economy is headed for a bigger downturn.
“The technical levels that would flip Wall Street’s outlook from a soft landing to a hard landing have yet to be breached… 4% for the 30-year Treasury, 400 bps for the high yield CDX and 5050 bps for the S&P 500,” Hartnett said.
The 5050 level for the S&P 500 coincides with the index’s rising 200-day moving average. As of Friday, the S&P 500 was trading at 5,317, which is about 6% above its 200-day moving average.
“For equity leaders SOX (4600) and big tech XLK (200), holding their 200-day moving averages is key. A break below this level will have traders targeting the 2021 high (i.e. a 10% drop),” Hartnett said.
Both the SOX Semiconductor Index and the XLK ETF tested their 200-day moving averages as a technical support level earlier this week. Market volatility spikes before starting to rise again.
Although the stock market has yet to break through key technical support levels, Hartnett is cautious about the outlook for the U.S. economy and stock market.
For a soft landing to occur, a lot of things have to go right, including interest rate cuts by the Federal Reserve and lower interest rates boosting investor sentiment.
But Hartnett said price trends in certain areas of the stock market are not looking good.
“Biotech stocks (the longest-dated stocks) are not doing well and U.S. retail stocks (consumer discretionary stocks are at a 12-year low) have not yet risen,” Hartnett said.
Hartnett is sticking to his strategy of selling stocks after the Fed’s first rate cut, expected at its policy meeting next month.
“We remain in the ‘sell the first cut’ camp,” Hartnett said, adding that risks for AI stocks are rising. The race to show return on investment From huge GPU spending.
Read the original article Business Insider
