S&P 500 Dips Amid Rate Hikes, Geopolitical Tensions, Tech Struggles

The stock market endured a brutal week, with the S&P 500 experiencing its worst performance since March 2023. This downturn was fuelled by a confluence of anxieties.

Economic and Federal Reserve Impacts

Firstly, economic data exceeding expectations, combined with hawkish statement from the Federal Reserve, raised concerns that interest rates might remain elevated for a longer period.

This dampened investor enthusiasm for equities, especially growth stocks, which are more sensitive to interest rate fluctuations.

Secondly, geopolitical tensions surrounding the Israel-Iran conflict added another layer of uncertainty to the market.

Tech Sector Struggles

Further exacerbating the sell-off, the technology sector, especially, felt the pressure with disappointing earnings reports from major chipmakers such as ASML and TSM.

These reports cast a shadow over the upcoming earnings season for tech giants like Apple and Amazon. Investors are anticipating strong results but remain anxious about these companies’ ability to meet the high expectations set for their artificial intelligence initiatives.

Weekly Performance Overview

For the week, the S&P 500 dipped by -3.1%, the tech-heavy Nasdaq Composite lost ground by -5.5%, and the blue-chip Dow managed a slight gain of +0.01%.

Here are the closing levels on Friday, 19th April 2024: 

Index Last Change %Change
DOW JONES  37,986.40 +211.02 +0.56%
S&P 500  4,967.23 -43.89 -0.88%
NASDAQ  15,282.01 -319.49 -2.05%
U.S. 10Y  4.621%
VIX  18.71 +0.71 3.94%

Market Volatility and Technical Analysis

As expected, markets were once again volatile. There appears to be a shift in market behavior with dip buying not as rewarding as before.

A strong rebound was observed before the market opened, following suggestions that the Israeli strike on Iran was intended to deescalate tensions rather than escalate conflicts. However, during the main trading session, the market began a systematic decline from which it did not recover.

Technical indicators demand attention. Last week, the S&P 500 breached its 50-day moving average and is now hovering around its 100-day moving average. More critically, the tech-heavy Nasdaq 100 has fallen below its 100-day moving average, highlighting a more pronounced sell-off in the technology sector.

Is a Market Correction Imminent?

This situation raises the question: Has the market advanced too quickly, necessitating the long-anticipated correction?

Currently, the markets appear oversold, which adds complexity to the forthcoming earnings reports. Notably, Microsoft Corp., Meta Platforms Inc., Google’s parent company Alphabet Inc., and Tesla Inc. are set to announce their earnings next week. Should their guidance be weak, it could trigger an even greater sell-off.

Upcoming Economic Data

Furthermore, the release of the Personal Consumption Expenditures (PCE) index next week could introduce additional volatility. Prepare for potential upheavals; this ride may indeed get bumpy.

Source: CBOE, Bloomberg

This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable U.S. bank exceeding 20 years.  

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