Stocks have sold off, but will they continue to decline in November?
Stocks sold off on Thursday, with the S&P 500 index breaking below its recent trading range and closing 1.86% lower. What triggered this sell-off? Sentiment worsened following earnings releases from META and MSFT on Wednesday, and on Thursday, market concerns grew over economic data and the upcoming presidential elections, with uncertain outcomes.
The S&P 500 reached its lowest level since October 7, hitting a daily low of 5,702.86. After the session, AAPL and AMZN released their earnings, sparking a slight rebound. This morning, a much lower-than-expected monthly jobs report provided a boost for the bulls, with the index expected to open 0.5% higher.
Before the Thursday’s decline, individual investor sentiment improved slightly, as shown in the Wednesday’s AAII Investor Sentiment Survey, which reported that 39.5% of individual investors are bullish, while 30.9% of them are bearish, up from 29.9% last week.
The S&P 500 has broken below its upward trend line from the early August low, as we can see on the daily chart.
S&P 500: Down in October
In October, the S&P 500 index lost 0.99%, with this decline occurring on the last trading day of the month, breaking a five-month winning streak. However, for now, it looks like a correction or a consolidation within a medium-term uptrend. It is still way above the important August 5 low of 5,119.26.
Nasdaq 100 Drops Below 20,000
The Nasdaq 100 underperformed the broader market, closing 2.44% lower and falling below the 20,000 level. With earnings season basically ending, the market may enter a consolidation phase. Next week’s presidential election will be a key factor. Support for the Nasdaq 100 is around 19,600, near the early October lows.
VIX: Highest Since Early September
The VIX index, a measure of market volatility, broke above its recent range, reaching 23.42 yesterday. This reflects heightened investor 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 Show Increased Volatility
The NYSE FANG+ (NYFANG) index, which includes 10 highly-traded tech mega-cap stocks like Apple, Microsoft, Amazon, Alphabet, Nvidia, and Tesla , broke below its upward trend line yesterday but remained near the previous highs. This seems to be a volatile consolidation, and failure to break above the early July high is a negative signal.
Futures Contract Near Previous Lows
The S&P 500 futures contract broke below its previous Wednesday’s low, reaching a low of around 5,733. The former support zone of 5,800-5,825 has now become resistance, while support is around 5,725, marked by early October lows.
Yesterday, I noted “Consolidation has now extended for two weeks, and upcoming data and earnings could prompt a breakout in either direction.” So, the market broke lower yesterday. However, will it continue to decline? The market broke lower yesterday, though a rebound or consolidation may begin soon, especially with the upcoming presidential elections likely to add volatility.
Conclusion
Stock prices are expected to open higher following yesterday’s sell-off. For now, this appears to be a rebound or an upward correction. The downtrend may not be over, but next week’s political news will be crucial. With earnings season nearly over, the market will focus on economic data; this morning’s jobs report surprised to the downside, initially boosting the market as investors hope for a quicker monetary easing by the Fed.
Summing up the Stock Price Forecast for November 2024, the market ended a multi-month winning streak on the final trading day of the month. The key question is: Will this sell-off mark the start of a medium-term downtrend, or is it merely a downward correction within an uptrend? For now, it appears to be a correction, but next week’s presidential elections could add to volatility.
Last month, I wrote “Although monetary policy easing supports the bulls, uncertainty surrounding geopolitical risks and the upcoming presidential election may still weaken sentiment.” This has proven true; political uncertainty remains, impacting investor sentiment as shown by yesterday’s sell-off.
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 sold off after breaking the 5,800 level.
- The market is now focused on next week’s presidential elections as earnings season is basically over.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist