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Asset Watch
Thursday, October 24, 2024
We’re only days away from the U.S. Presidential Election and volatility could be amplified as the results pour in. The highly contested battle also collides with earnings from Big Tech heavyweights, and the recent rise in Treasury yields has clouded the economic outlook.
Add it all up, and the bears could feast over the next few weeks.
While Citigroup analysts concluded “We’re not suggesting investors should start to reduce exposure,” they warned on Oct. 22 that the S&P 500 is “particularly extended” and that “risks do rise when markets get extended like this.”
In a nutshell: Investors are too bullish, and when their models reach these levels, 10% corrections can occur.
Wells Fargo analysts added, “The SPX is +3% in the past month and +4.4% in the past two months. Over the last six presidential elections, we have seen equities trade lower into Election Day and sector returns reflecting risk-off…. Recall the SPX fell ~8% into month-end during the contested Bush-Gore Nov 2000 election.”
As a result, the “unattractive near-term risk-reward” supports a “sell-the-news” event in November.
If the S&P 500 suffers a deeper pullback, a retracement to 5,670 is near the previous breakout zone. However, a more likely outcome is a decline to near 5,770, as it aligns with trendline support (the upward-sloping white line).
The combination creates a solid foundation, and the bulls should defend the area if volatility erupts.
The 20-day moving average (the blue line) is another key variable, and it sits right above 5,770 and trendline support. The S&P 500 typically dips below the metric intraday before recouping it by the close. So with 5,770 and trendline support not far behind, a shallow pullback may be in the cards.
With so many variables at play right now, the aforementioned levels should hold unless an earnings-driven panic occurs. If Big Tech companies like Apple, Amazon, Alphabet, and Microsoft post resilient results and guidance, the S&P 500 should remain on solid footing.
Earnings may overpower the election results, and the technicals should provide clues into whether the next 5% move is higher or lower.
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