S&P 500 Forecast: Market Volatility Subsides, But Is It Over?

Market Turbulence Subsides

The S&P 500 closed Friday with a modest 0.1% gain, capping a week of significant market volatility. This slight uptick brought the index close to erasing Monday’s sharp 3% decline, the worst single-day performance since 2022. The week’s changes reflect ongoing uncertainty in the financial markets.

At Friday’s close, the Dow Jones Industrial Average traded at 39433.01, down 13.48 or -0.03%. The S&P 500 Index stood at 5325.51, up 6.20 or +0.12%, while the Nasdaq 100 Index traded at 16659.02, down 1.00 or -0.01%.

Economic Data and Fed Policy Drive Sentiment

Monday’s sell-off was triggered by disappointing U.S. payroll data and concerns about the Federal Reserve’s rate cut timing. These factors, combined with hedge fund activity in the yen carry trade, contributed to market instability. The 10-year Treasury yield experienced wide swings, moving from below 3.70% to around 3.93% by week’s end.

Markets Stage Mid-Week Recovery

Despite the turbulent start, major indices showed resilience. Thursday’s positive jobless claims report calmed fears about the U.S. economy, leading to the S&P 500’s best daily gain since November 2022, rising 2.3%. The Dow added nearly 683 points, while the Nasdaq surged by 2.9%. By week’s end, the Dow and Nasdaq had trimmed their weekly losses to just 0.7% and 0.6%, respectively.

NASDAQ 100 Performers

Notable gainers in the NASDAQ 100 included Trade Desk Inc (+9.32%), Palo Alto Networks Inc (+3.4%), and Atlassian Corp (+2.03%). Conversely, Grail Inc (-4.76%), Intel Corp (-4.47%), and Gilead Sciences Inc (-3.12%) faced significant declines.

Sector Performance Overview

Technology led the gains, rising 0.33%, followed closely by Consumer Discretionary with a 0.47% increase. Energy stocks climbed 0.34%, while Health and Financials saw modest gains of 0.39% and 0.23%, respectively. The Industrials sector was the worst performer, declining 0.21%, followed by Communication Services, which slipped 0.27%.

Cautious Investor Sentiment

While the market has shown resilience, analysts urge caution. Some believe the reaction to Thursday’s jobless claims data may have been overstated, given the relatively minor improvement. Market strategists suggest that volatility could continue in the coming weeks due to technical factors and global economic concerns.

Looking Ahead

As the S&P 500 approaches breakeven for the week, the outlook remains uncertain. While some investors are cautiously optimistic, believing that the worst of the sell-off may be over, others predict continued market volatility. Analysts at BCA Research warn of a possible 30% decline in the S&P 500 by next year as recession risks loom.

Traders should remain alert, as the market’s recent swings suggest that more turbulence could be ahead. The week’s events underscore the importance of staying informed and prepared for rapid changes in market conditions. As always, investors are advised to consider their long-term goals and risk tolerance when making investment decisions in this evolving financial environment.

Technical Analysis

E-mini S&P 500 Index futures are inching higher at the mid-session on Friday after clawing back an earlier loss. Despite the gain, the benchmark index is facing headwinds at 5360.50. This represents 50% of the 5600.75 to 5120.00 range.

The good news is the pivot can turn into a trigger point for an acceleration to the upside. This move would put the 50-day moving average at 5501.75 on the radar.

If the selling pressure resumes then look for more consolidation with a range bound trade.