The stock market has been experiencing a steady decline over the past few months, and it appears that this downward trend is gaining momentum. Investors should brace themselves for further declines in the near future.
S&P 500 Index Takes a Dive
The S&P 500 index, which was already down for the week, took a significant plunge on Wednesday, dropping almost 1%. Unfortunately, the declines are set to continue as we enter early Thursday. This recent downturn comes in the wake of the Federal Reserve’s decision to keep interest rates unchanged. However, they have signaled their intention to maintain higher rates for a longer duration than initially anticipated in order to combat inflation.
Falling 5% from Its Peak
As of now, the S&P 500 is approximately 5% below its highest point of the year, which was recorded at 4,607.07 in late July 2023. The concern stemming from Wednesday’s Fed announcement is that the impact of higher rates will be delayed, resulting in continued economic strain. Furthermore, investors should not expect much relief as the Fed is projected to be slow in reducing rates and any reductions will likely be minimal.
More Declines on the Horizon
With the S&P 500 teetering just below the 4,400 mark, it is increasingly likely that further declines are imminent. Looking at the past five trading days, it seems as though the index is in freefall, making it reasonable to predict a potential dip to 4,300. This is a critical support level that has provided buyers with opportunities to send the index higher multiple times this year. However, if buyers fail to materialize at 4,300, signaling a lack of confidence in the economic landscape, the next key support level to monitor is 4,200.
Brace for Potential Fluctuations
Depending on the speed at which the index is falling, it may stabilize for a few days at the 4,200 level. If it proves unable to hold there, it would not be surprising to witness a drop towards the 4,000 mark, which is another important support level.
According to John Kolovos, the chief technical strategist at Macro Risk Advisors, breaking the 4,300 threshold would expose the market to greater downside risks, potentially leading to a further decline towards the 200-day moving average (approximately 4,200) and even down to 4,075. This level represents a substantial 7% drop from the current index level.
Exercise Caution in the Stock Market
Considering the potential for such a significant decline, it may be wise to stay away from stocks in the near future.
