U.S.-China trade tensions have ratcheted up again following President Trump’s decision to level tariffs on the remaining $300 billion of U.S. imports from China. Combine that with China’s decision to let its currency (the yuan) weaken past the 7 per dollar level, and investors may be more concerned than ever that global tensions could drag down the economy and stocks.
From July 26 through August 5’s close, the S&P 500 Index lost 6%. Even though stocks have rebounded the past few days, we remain several percentage points off the highs. While heightened volatility may be here to stay, technical analysis suggests the market is unlikely to revisit the December lows.
As shown in the LPL Chart of the Day, S&P 500 Index Has Strong Technical Support, the June lows near 2,740 have been a key pivot point for the index going back to February 2019. In addition, the 5-day put/call ratio surged to its highest level since December, suggesting investor demand for protection was high, a bullish indicator for stocks in our view.
“Fear can be an important ingredient in forming a market bottom,” said LPL Senior Market Strategist Ryan Detrick. “We think the technical support and fear already shown by the market makes a break of the June lows unlikely, but if it occurred, it would likely represent an opportunity for suitable investors.”
Late summer weakness shouldn’t come as a surprise, as we discussed earlier this week in our Weekly Market Commentary. We expect the S&P 500 to ultimately rally back toward our S&P 500 year-end fair value estimate of 3,000 given a more accommodative Federal Reserve and a generally favorable macroeconomic environment.
Please see the Midyear Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets for additional description and disclosure.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note LPL Financial makes no representation with respect to such entity.
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value
For Public Use | Tracking # 1-881458