S&P 500 likely to face stiff resistance ahead, especially around this level
Although the S & P 500 is coming off strong gains in the previous week, several technical analysts are warning that the market isn't yet in the clear. As of midday Monday, the S & P 500 was down about 0.7%, trading above the 5,480 level. The broad market index advanced 4.6% last week on hopes for progress on tariff talks. According to Ari Wald, technical analyst at Oppenheimer, the risk-reward outlook for the broad market index is becoming "less favorable" as it nears its 200-day average near the 5,745 level. "We believe risk-taking is establishing a floor and likely needs to back & fill over the coming months," Wald wrote in a note on Saturday. Roth Capital Partners' chief technical strategist JC O'Hara noted Sunday that while the S & P 500 is no longer in correction territory, he sees overheard resistance until the 5,670 level, where the broad market index closed on April 2. "Repairs continue but the bear case remains," O'Hara wrote. JPMorgan's cross-asset strategy team also forecasts the S & P 500 staying in a range between 5,200 and 5,800 — its bull and bear case levels. In a Friday client note, the investment bank said "to sell risk assets on strength rather than chasing the momentum as a complete shift in narrative will require clearing further headlines."
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The term premium - the risk premium investors demand for holding long-term debt rather than rolling over short-dated loans - is the highest in over a decade, reflecting concerns about Uncle Sam's long-term fiscal health. And the diagnosis here shows no signs of improving. Trump's 'Big Beautiful Bill' is expected to add $2.4 trillion to the U.S. debt over the next decade, according to the nonpartisan Congressional Budget Office, likely putting more upward pressure on yields. Of course, equity investors do seem to be pricing in a very rosy scenario, and the past few months have shown how quickly the market landscape can change. The U.S. economy could weaken more than expected, the trade war could escalate, or there could be a geopolitical surprise that causes bond yields and equity prices to fall. Investors should therefore be mindful of the warnings being sent by ERPs and other absolute and relative valuation metrics. However, they should also remember that stretched valuations can get even more stretched. As the famous saying goes, markets can stay irrational longer than investors can remain solvent. What could move markets tomorrow? * India CPI inflation (May) * UK trade (April) * UK industrial production (April) * ECB's Jose Luis Escriva and Frank Elderson speak atseparate events * Brazil retail sales (May) * $22 billion U.S. 30-year Treasury note auction * U.S. weekly jobless claims * U.S. PPI inflation (May) Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. (By Jamie McGeever; Editing by Deepa Babington) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
