Has the US stock market really hit rock bottom?
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$S&P 500(.SPX)$ closed down 62 points, or 1.2%, on Monday, marking its steepest two-day percentage decline in over a year and its largest two-day point decline since late 2022. But market analysts generally believe the US stock market hasn't fallen to the bottom！
Recently, the US stock market has been buffeted by two major forces: the Fed's expectations for interest rate cuts and the situation in the Middle East.
Nicholas Rabe, co-founder of DataTrek, said:
The stock market is now caught between a rock and a hard place. On one hand, there's a robust and inflationary US economy, and on the other, there's a widening conflict in the Middle East that's setting the stage for an economic recession.
Plus, the so-called 'fear index' – $Cboe Volatility Index(VIX)$ – surged on Monday and closed at 19.2, but it's still below its long-term average of 20 and its one-year high of 21.7. That means the market is likely to remain volatile for the next few days at least.
Joe Mazzola, director at Schwab, added:
The S&P 500 has seen three 'significant declines' in the past four trading days and has broken below its 5-day moving average for the first time since November last year, which is a sign of technical weakness.
The lack of buying at the end of yesterday's trading session suggests that the 'buy the dip' sentiment may be waning. The S&P 500 is down about 3.7% in April, but it's still up over 6% for the year.
That sounds okay, but Marko Kolanovic, head of the global market strategy team at JPMorgan, warned:
The stock market may not have fully reflected the growing bearish factors yet. Continued high economic growth combined with inflation risks, and the narrowing of the risk premium between stocks and bonds, will ultimately trigger a market correction.
Moreover, investors' positions have already risen, with cash allocations at historically low levels, so he remains cautious in his position-holding and prefers commodities and cash to underweight stocks.
Ross LaDuke, global strategist at Vermilion Research, said:
Investors shouldn't panic as long as the S&P 500 and $NASDAQ 100(NDX)$ haven't broken below their 200-day moving averages and 21-day exponential moving averages for more than 2 to 3 days, and the consecutive declines on Friday and Monday have met that condition.
However, the S&P 500 will only see a significant drop to the next major support level of 4800 if it breaks below its current two-month support range of around 4983-5050 points.
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