The S&P 500 on Thursday finished right on the cusp of a critical support line that, if broken, could portend more losses for stocks in the coming days and weeks.
As of Thursday’s close, the index was hovering less than one point above its 50-day moving average, according to Dow Jones Market Data. The Nasdaq Composite broke below its 50-day average earlier this week. On Thursday, both the Nasdaq and the S&P 500 tallied their fourth straight days in the red. The Nasdaq-100, which is even more heavily exposed to megacap companies, also was on the cusp of breaking below the trendline.
For stocks, momentum to the downside has tended to accelerate following previous breaks below the 50-day, Dow Jones Market Data showed. However, investors willing to wait out some short-term volatility have typically been rewarded. Following the past five breaks below the 50-day, the S&P 500 has returned 10.7%, on average, during the six months that followed.
The Nasdaq Composite finished below its own 50-day moving average earlier this week, and the more-exclusive Nasdaq-100 isn’t far behind.
“It’s a good level of support until it isn’t,” said Kevin Smith, founder and chief investment officer at Crescat Capital. “I think now more than ever it pays to have tail-risk protection.”
Between the beginning of April and the beginning of June, indexes such as the S&P 500 and Nasdaq Composite seemed to rise in a straight line. But over the past few weeks, investors have seen some big down days — including June 5, when the Nasdaq Composite fell by more than 4%.
Lately, shares of the “Magnificent Seven” group of elite megacap stocks have been struggling. According to Dow Jones Market Data, the cohort has shed more than $3 trillion in market value so far in June — on track for the biggest monthly drop on record. All seven members of the group — which includes Microsoft, Nvidia, Alphabet, Tesla, Amazon, Meta and Apple — finished in the red on Thursday.
“People have been looking to rotate into more sensible valuations,” said Brian Mulberry, chief market strategist at Zacks Investment Management. “I’m not saying that’s right or wrong. That’s just what I’ve been seeing in the past couple of days.”
Strength outside of the tech space helped major indexes like the Dow Jones Industrial Average finish in the green on Thursday. The Dow, which isn’t as heavily exposed to tech as the S&P 500 and Nasdaq Composite, gained 71.72 points, or 0.1%, to finish at 51,920.62 on Thursday, its second-highest close in history, according to Dow Jones Market Data.
The S&P 500 finished only marginally lower at 7,357.49, while the Nasdaq fell by 0.5% to 25,358.60.
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