The stock market surge of 2024 has finally taken a breather.
The S&P 500 (^GSPC) and Nasdaq Composite Index (^IXIC) suffered their worst one-day declines since 2022 on Wednesday and extended losses on Thursday. Over the past 10 days, the benchmark S&P 500 has fallen about 3%, while the Nasdaq has fallen more than 6%.
The recent stall in stock gains is in line with predictions from equity strategists in the recently released Yahoo! Finance Chartbook Volume 3. Truist co-chief investment officer Keith Lerner noted that years in which the S&P 500 rises more than 10% in the first half of the year often see an average decline of around 9% in the second half.
By the end of June, the S&P 500 was up about 14%.
“The recent volatile market trends we have been expecting are likely to continue further in both price and time frames,” Learner wrote in a client note on Thursday.
Technology has been a clear bellwether for the recent market sell-off: Information technology and communication services are the only sectors to post negative returns over the past month among the 11 sectors in the S&P 500. In an interview with Yahoo Finance, Lerner argued that the recent sell-off is unsurprising given the tech sector’s historical upward trajectory.
According to Lerner’s research, in late June, tech stocks recorded their second consecutive month of outperformance compared to the S&P 500, the most since 2002. Like an overstretched rubber band, Lerner says, extreme market outperformance usually leads to a rebound.
“When you’re pushed that far, even a little bit of bad news can have a big impact,” Learner said.
The “bit of news” came from Alphabet (GOOGL, GOOG) and Tesla (TSLA) after the close on Tuesday, leading to a selloff on Wednesday. Lerner noted that while the earnings weren’t bad, they failed to impress investors who had set a high bar going into this earnings season.
Earnings from Apple (AAPL), Meta (META), Microsoft (MSFT) and Amazon (AMZN), expected to be released next week, will be the next test of investor sentiment in the technology sector. Learner reasoned that the tech industry’s latest earnings could surpass investors’ subdued expectations after the market reset over the past few trading sessions.
“I think the long-term story of this bull market is still intact,” Lerner said. “Capital will come back, but I think it needs a lull and a break to rest and refresh.”
Traders work on the floor of the New York Stock Exchange during afternoon trading in New York City on April 2, 2024. (Michael M. Santiago/Getty Images) (Michael M. Santiago via Getty Images)
Brian Belski, chief investment strategist at BMO Capital Markets, also highlighted the possibility of a pause in the stock market rally in the latest edition of his chartbook.Like Lerner’s analysis, Belski’s research shows that bull markets have seen an average decline of about 9% in the second year going back to 1949. The most recent bull market began in October 2022.
The story continues
Belski told Yahoo Finance on Tuesday that the market is “ripe for a pullback from an emotional standpoint.” But to Belski, this is a “buying opportunity.” His research shows that markets typically recover an average of 14.5% from the bottom of declines in the two-year bull markets he has studied.
“Stock prices will rise at the end of the year,” Belski said.
Josh Shaffer is a reporter for Yahoo Finance. Follow him on X Follow.
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