Stocks face some uncertainty ahead of the elections. Will they extend their declines?
Friday’s trading session saw fluctuations in the stock market as investors showed hesitation after Thursday’s 1.9% sell-off. The S&P 500 index closed 0.41% higher, though it had initially traded higher before retreating from a larger intraday gain. Thursday's session reflected growing concerns over economic data and the upcoming presidential election, adding to market uncertainty.
This morning, the S&P 500 is expected to open flat, and it may see continued fluctuations and uncertainty ahead of tomorrow’s election and Thursday’s FOMC rate decision.
Before the Thursday’s decline, individual investor sentiment improved slightly, as shown in last 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 on Thursday, as we can see on the daily chart.
S&P 500 Extending Previous Week’s Decline
Compared to the prior Friday's close, the S&P 500 fell 1.37% last week, extending the previous week's 1% decline. Key support remains between 5,600 and 5,700, marked by the local highs from July and August.
Nasdaq 100: Holds Near 20,000
The Nasdaq 100 gained 0.72% on Friday after an attempt to recover from Thursday’s 2.4% sell-off. It ultimately closed slightly above the 20,000 level and is expected to open unchanged this morning. Support for the Nasdaq 100 remains around 19,600, near early October lows.
VIX: Still Above 20
The VIX index, a measure of market volatility, broke above its recent range last week, reaching 23.42 On Thursday. 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.
Futures Contract: Consolidation After Sell-Off
The S&P 500 futures contract broke below its recent consolidation range on Thursday, and Friday’s session was marked by fluctuations following the monthly jobs report. Overall, the market showed little change on the first trading day of the month. This morning, the it is moving sideways. For now, stocks appear to be in a consolidation phase within a downtrend. The support is around 5,725, marked by early October lows, and the resistance remains at 5,800.
On Friday, I wrote that “a rebound or consolidation may begin soon, especially with the upcoming presidential elections likely to add volatility” It proved correct, and today’s trading session is likely to bring more uncertainty and sideways trading.
Conclusion
Stock prices are likely to trend sideways this morning as investors await tomorrow’s presidential election, with increased market volatility expected.
On Friday, I noted “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.” This week’s main events - the presidential election and the FOMC rate decision on Thursday – are likely to add significant volatility.
In my Stock Price Forecast for November 2024, I wrote “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.”
For now, my short-term outlook is neutral.
Here’s the breakdown:
- The S&P 500 remains under pressure following Thursday’s sell-off.
- The market is focused on presidential elections as earnings season winds down.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist