Wall Street Traders, April 2024.
The roaring stock market rally of 2024 has hit a significant pause. The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) recorded their worst one-day drops since 2022 on Wednesday and extended those losses into Thursday. Over the past 10 days, the S&P 500 has fallen approximately 3%, while the Nasdaq has dropped more than 6%.
Current Market Trends and Predictions
The recent decline aligns with predictions from equity strategists featured in the latest volume of the Yahoo Finance Chartbook. Keith Lerner, Truist's co-chief investment officer, noted that in years when the S&P 500 rises more than 10% in the first half, the second half typically sees an average pullback of about 9%. As of the end of June, the S&P 500 was up about 14%.
"This choppier market action, which we anticipated, likely has further to go in terms of price and time," Lerner wrote in a note to clients on Thursday.
Impact on Technology Sector
The technology sector has been the primary driver of the recent market downturn. The Information Technology and Communication Services sectors are the only ones among the 11 sectors in the S&P 500 with negative returns over the past month. Lerner explained that the sell-off in tech is understandable given the sector's rapid gains. In late June, tech outperformed the S&P 500 on a rolling two-month basis by the most since 2002, suggesting a snapback from these extreme levels was likely.
"When we get that stretched, a little bit of bad news can go a long way," Lerner said. This "little bit of news" came via earnings reports from Alphabet (GOOGL, GOOG) and Tesla (TSLA) after the bell on Tuesday, which led to Wednesday's sell-off. Although the earnings were not terrible, they failed to impress investors who had high expectations.
Future Outlook and Opportunities
Earnings reports from Apple (AAPL), Meta (META), Microsoft (MSFT), and Amazon (AMZN) expected next week will be crucial for investor sentiment in the tech sector. Lerner believes that after the recent market reset, there is a possibility that these tech earnings will exceed the now-lowered expectations of investors.
"I think the secular story of this bull market is still intact," Lerner said. "Money will return to the tech sector. It’s just likely we need a resting period and a pause that refreshes."
BMO Capital Markets chief investment strategist Brian Belski echoed similar sentiments in the latest edition of the Yahoo Finance Chartbook. Belski’s analysis indicates that since 1949, the second year of a bull market typically experiences an average pullback of about 9%. The current bull market began in October 2022.
Belski told Yahoo Finance on Tuesday that the market is "ripe for a pullback from a sentiment perspective," but he views this as a "buying opportunity." His research shows that markets usually rebound an average of 14.5% from the bottom of second-year bull market drawdowns. "Stocks will be higher at year-end," Belski said.
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