Sentiment toward stocks worsens - will tariff news push prices even lower?
Stocks opened higher on Friday, driven by Apple's earnings report. The S&P 500 index neared its record high on January 24 before pulling back and closing 0.50% lower due to Canada, Mexico, and China tariff news.
Sentiment worsened further over the weekend, and this morning, the S&P 500 is expected to open 1.7% lower, gapping down below the 6,000 level.
Investor sentiment also declined last week, as shown by Wednesday's AAII Investor Sentiment Survey, which reported that 41.0% of individual investors are bullish, while 34.0% of them are bearish.
The S&P 500 index is set to retrace its recent gains today, as we can see on the daily chart.
S&P 500 Declined 1% Last Week
The S&P 500 fell by 1.00% last week, following a 1.7% gain the prior week. Despite reaching a new record high the previous Friday, the market has extended its consolidation phase.
Key medium-term support level is currently around 5,800, marked by recent lows, while resistance is around 6,100.
S&P 500 Gained in January
In January, the S&P 500 index gained 2.70%, retracing its 2.5% December pullback. The market continues to trade near new record highs, slightly extending its multi-year bull market.
Last month, I wrote “Is the market forming a medium-term high before a more significant downward correction? It’s too early to tell, but the current volatility suggests the market is entering a correction or at least a medium-term consolidation.” This still holds, as the S&P 500 continues its consolidation following the post-election rally.
Nasdaq 100 Facing More Fluctuations
The Nasdaq 100 fell 0.14% on Friday after opening higher and reaching a daily high of 21,846.01. The technology sector remains uncertain due to recent AI-related news. Despite earnings releases, major tech stocks continue to trade sideways.
This week, we will get releases from AMD, GOOG (tomorrow), QCOM (Wednesday), and AMZN (Thursday), and the volatility is likely to remain elevated.
Resistance is around 21,800, marked by the previous trading range, while support is at 21,000, marked by recent lows.
VIX Rebounds from 15
The VIX index, a measure of market volatility, advanced to the daily high of 22.51 last Monday, the highest level since December 20. However, it later retraced most of that move, falling to 14.90 on Friday. A pullback in stocks drove the VIX higher again, reaching 17, signaling increased fear.
Historically, a dropping VIX indicates less fear in the market, and rising VIX accompanies stock market downturns. However, the lower the VIX, the higher the probability of the market’s downward reversal. Conversely, the higher the VIX, the higher the probability of the market’s upward reversal.
FANG Stocks Remain Volatile
The NYSE FANG+ (NYFANG) index, which includes 10 highly-traded tech mega-cap stocks like Apple, Microsoft, Amazon, Alphabet, Nvidia, and Tesla, remains in a sideways trend. However, on January 24 it hit a new record high of 13,987.94, boosted by a rally in AAPL, despite ongoing uncertainty in the AI sector.
Support remains at 13,000-13,200, marked by the recent lows. The index continues its long-term uptrend but may be forming a medium-term topping pattern.
S&P 500 Futures Contract Is Selling Off
This morning, the S&P 500 futures contract is trading well below Friday’s closing price of around 6,066. The market is set to open lower following weekend tariff news, which could lead to increased short-term volatility. Support is now at around 5,900-5,950, while resistance is at 6,000-6,050.
Conclusion
Today’s trading session is likely to begin on a very negative note, with the S&P 500 index gapping down below the 6,000 level.
Is this a start of the new downtrend? Probably not. However, bears have control for now, and the market may retest its recent lows again. Investors are awaiting upcoming earnings reports, which could lead to further volatility.
Summing up the Stock Price Forecast for January 2025, the stock market is poised for a negative start to the month, but no clearly bearish signals are evident. The S&P 500 is extending its post-election consolidation.
Last month, I asked "Will the market resume its uptrend and reach new record highs?", and my answer was: “This appears likely at some point, driven by growing optimism ahead of Trump’s upcoming inauguration on January 20. However, rallies may provide selling opportunities, leading to a medium-term consolidation phase.”
Indeed, recent rallies have provided selling opportunities. What will February bring? The earnings season is in full swing, likely adding to volatility. Political developments are increasing uncertainty. The market's ongoing consolidation since November may be forming a medium-term topping pattern ahead of some more meaningful downward correction. However, no confirmed bearish signals have appeared yet.
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 is likely to retrace last week’s rebound today.
- The stock market is still seeing increased volatility following the post-election rally.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist