The U.S. stocks declined sharply on Friday. DJIA fell by 1.1%. The NASDAQ Composite slid 1.8% and the$S&P 500(.SPX)$ tumbled by 1.4% at 3970.04 to close the week at the market. Friday marked the worst week for the S&P 500 and Nasdaqsince December 2022.
The stock market had started January 2023 reversing the downward trend of 2022. Now the market bounce became a rally trap. The market's worry of longer interest rate hikes, due to the reemergence of hotter-than forecast inflation brought the first round of market weakening in February 2023. High valuations of stocks hit the market hard last week. Taking account of the increasingly weak or negative growth expected in S&P 500 earnings shows stocks as highly priced as they have been in the historical data.
Now the PEG model (price/earnings to growth ratio ) points to an extended market with few precedence. The danger: Growth is at risk while valuation pressure builds.
What's next for S&P 500 when the market opens on next Monday?
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