Stocks just broke through a key level that indicates a sell-off. Here's how much the S&P 500 will fall before you should buy, according to one strategist

Business Insider

6 hours ago

The stock market flashed a key technical signal that suggests a pullback from all-time highs is on the way.
That's according to Jonathan Krinsky, the managing director and chief market technician at BTIG, who thinks the S&P 500 is bound for a 5% pullback soon. The benchmark index just broke through a technical resistance level that suggests a retrenchment is likely, he said, speculating the index could fall to around 6,100 before investors have the opportunity to buy.
The S&P 500 saw technical resistance, a price ceiling where sellers are likely to step in and cause a pullback, at around the 6,100 mark in late January, Krinsky said. That was several months before Trump announced his tariffs and drove a steep decline in equities. The index then dropped around 20% from its February peak through the sell-off in early April, before breaking past the key 6,100 level again in late June.
"Typically, when you break through resistance, you do get a check back to kind of retest that support. And so we do think that's coming, into this August, September period," Krinsky said, speaking to CNBC this week. "We think you'll get an opportunity to buy around 6,100."
There are a few signs that suggest that the stock market is looking vulnerable to a correction, Krinsky added. Here are some of the warning signs he sees:
1. Consumer-focused stocks look weak.
Krinsky pointed to potential vulnerabilities in consumer-facing sectors, like retail and transportation.
The consumer discretionary sector of the S&P 500, for instance, has been among the worst-performing areas of the market so far this year. Consumer discretionary stocks in the S&P 500 are down 0.43% since January, one of the only areas of the broader index in the red this year.
Other market pros have said they're eyeing weakness in consumer stocks, pointing to the impact of tariffs on inflation and consumer spending.
"You're seeing some cracks under the surface," Krinsky said.
2. Semiconductors could start to underperform
Historically, semiconductor stocks have lagged behind software stocks in the late summer, Krinsky said, adding that he believed many names in the semiconductor space also looked vulnerable to him.
Some chipmakers' second-quarter earnings have been weaker than expected. Advanced Micro Devices missed slightly on earnings estimates for the quarter, while Super Micro Computer missed slightly on earnings and revenue.
"August tends to favor software over semis," Krinsky said, though he noted that Nvidia's earnings report, which is coming up at the end of the month, will remain a key influence over the sector's performance.
3. Credit spreads could widen
Credit spreads, which are the difference between the yield demanded by investors to hold corporate bonds versus safer debt like US Treasurys, have remained tight this year. For markets, that's a good sign, as wider credit spreads mean investors think there's a higher risk to holding corporate debt over government bonds, and are demanding a higher yield.
The ICE Bank of America US High Yield Index Option-Adjusted Spread hovered near 2.95% in the last week, near a historic low.
But credit spreads could start to widen, which could be negative for equities, Krinsky said. He pointed to weak manufacturing employment data, which tends to be associated with wider credit spreads.
"If we think that credit spreads are about as tight as they can get, they probably have a little bit of room to move wider. That also suggests some risk in the cyclical versus defensive trade," he added.
4. Investors could start to sell mega-cap tech stocks
Microsoft and Meta, two of the largest tech titans in the AI trade, reported "blowout" earnings for the second quarter, Krinsky said. But besides both stocks surging after reporting their results, investors haven't been buying more shares, he added.
"We haven't seen buying enthusiasm post the print," Krinsky said. "That's the risk. We kind of got as good as it gets from some of those mega-cap earnings, and we just see a little bit of profit taking into the back half of the summer."