(Bloomberg) — The latest rout in U.S. stocks sent the S&P 500 below its June bear market low — and then some buyers showed up.
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The S&P 500 fell as much as 2.7% to 3,656, below the mid-June high of 3,666. It changed only a few points above that level during the session, and programmed buying briefly halted the decline.
“The buyers’ strike is right because you can park your money somewhere else,” said Willie Delwiche, investment strategist at All Star Charts. “There’s a lot more work to be done before we can be sure anything sustainable is emerging.”
Traders who look to charts for signs of where the fall could ease off the June low have identified it as a potential area of support. A call below that level would wipe out all gains from the end of 2020.
The S&P 500 fell for a fourth straight day and is on track for its fourth weekly decline in five. Selling was not good across sectors: the gauge had closed more than 400 points on each of the three days leading up to Friday.
“The technical stuff has fallen out of bed,” said Art Hogan, chief market strategist at B. Riley, in a phone call.
Its breakdown from the August peak solidifies the downward channel that has been in place since the apex of the bull market in early January, according to Gina Martin Adams at Bloomberg Intelligence. “The breakdown below 3,900 support leaves little for the index to grasp as it tests the June lows,” she wrote in a note.
The Federal Reserve made it clear this week that it is going to raise rates sharply until officials see signs that price pressures are easing. That process will not be “painless” for the labor and housing markets, Fed Chairman Jerome Powell warned.
The rate rose on Wednesday with projections that the central bank has another 1.25 percentage points of tightening for investors this year, a much more aggressive pace than investors had expected.
Despite the routine, stocks are still far from clear markets. At the June low, the S&P 500 was trading at 18 times earnings, a multiple that surpassed trough valuations seen in each of the previous 11 bear cycles, data compiled by Bloomberg show. In other words, if equities recover from here, this underlying market will be the most expensive since the 1950s.
While investors used to be positioned as if the economy was headed for a soft landing, that was no longer the case, according to Anastasia Amoroso, chief investment strategist at iCapital.
“What the markets really need to do is price in a recession because that seems to be what weakness in the labor market would ultimately cost,” she said on Bloomberg TV this week.
The market has been trading in a range of 3,700-3,800 to 4,300 for some time now, she said.
“We may need to see a break below that trading range to get dirt-free value in equities,” Amoroso said. “We’re not there yet, so trading right now needs to be defensive and get paid while you wait for this base in the market.”
Regarding the June low, many are seeing an ominous sign in the number.
“Anything lower than where it is right now feels damn good,” Kim Forrest, founder and chief investment officer of Bokeh Capital Partners, said in an interview.
(Prices update throughout.)
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