The pullback in U.S. equities may be more than just a passing phase, according to strategists.
The S&P 500 is down 7.3% since its Sept. 2 record, and the Nasdaq 100 has slid 12% as investors fret over the coming presidential election and a Congress that’s deadlocked over the next stimulus package.
“This month’s underperformance of U.S. assets affirms an anxiety that has existed for some time -- that the U.S. would generate the greatest and the widest range of wild cards this fall,” JPMorgan Chase & Co. strategists led by John Normand wrote in a note Friday.
Developments Friday deepened the concerns. The S&P 500 and Nasdaq closed below their 50-day moving averages, a line that had previously offered good support. And the passing away of Justice Ruth Bader Ginsburg could mean the Senate will be so focused on a replacement that lawmakers won’t be able to agree on additional stimulus. U.S. equity futures sank on Monday, reflecting losses in European stocks.
While the S&P 500 and Nasdaq’s technical moves “were only slight ‘breaks,’” a pattern of lower lows in stock prices of large tech companies that have led the market in recent years is a bearish sign, said Matt Maley of Miller Tabak + Co. “It increases our confidence that we will indeed see another leg lower for the stock market before long.”
A delay in stimulus could boost the VIX and cause cyclical stocks to lag behind, as well as send rates and the U.S. dollar lower, according to Michael Purves, chief executive officer at Tallbacken Capital Advisors LLC. The prospect of a delayed election result could also boost implied volatility of gold as well as the VIX curve, he said.
The bearish outlook has coincided with U.S. equities entering a seasonally weak month, according to Bespoke Investment Group.
“September has historically been the worst month of the year, and it’s a month that is usually volatile as well. Given the recent action, it’s not the most positive backdrop for the weeks ahead,” Bespoke wrote in a blog Saturday.
This article was provided by Bloomberg News.