Have stock prices reached their short-term top?
The S&P 500 gained 1.47% on Friday, extending its uptrend following the higher-than-expected Nonfarm Payrolls release. The market advanced despite mounting concerns about the impact of new tariffs and their potential effect on corporate earnings going forward.
This morning, U.S. stock futures are edging lower, with the S&P 500 expected to open 0.7% lower, retracing some of Friday's rally as investors digest a barrage of trade-related headlines from President Trump and focus on the upcoming FOMC rate decision on Wednesday.
Investor sentiment has further worsened, as shown in last Wednesday’s AAII Investor Sentiment Survey, which reported that only 20.9% of individual investors are bullish, while 59.3% are bearish.
The S&P 500 neared its late March local highs, as we can see on the daily chart.
S&P 500: Another Weekly Advance
The S&P 500 gained 2.92% last week, extending its prior week’s rally of 4.6%. Despite this strong performance, it remains uncertain whether we're seeing a new uptrend forming or just a correction within the broader downtrend. With tech earnings season basically over, the market may suffer a correction or consolidation following the recent rally.
Nasdaq 100 Breaks 20,000 Level
The tech-heavy Nasdaq 100 closed 1.60% higher on Friday but is now expected to pull back to the 20,000 level, with futures pointing to a 0.9% decline at the open.
The pullback in tech stocks appears to be driven by President Trump's announcement of new 100% tariffs on movies produced outside the U.S., weighing on shares of Netflix, Disney, and Warner Bros Discovery in premarket trading.
VIX Extends Declines
The VIX dipped again on Friday, suggesting growing investor confidence despite concerns about trade policies and economic growth. The VIX reached as low as 22.34.
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.
S&P 500 Futures Contract: Pulling Back Below 5,700
This morning, the S&P 500 futures contract is trading below the 5,700 level following an overnight retreat.
The resistance level remains around 5,700-5,720, while support is at 5,600, marked by the recent local low.
Conclusion
The S&P 500 is expected to pull back this morning, likely retracing a part of its Friday advance. Despite its recent strong performance, it remains uncertain whether we're seeing a new uptrend or just a correction within the broader downtrend.
With major earnings catalysts now largely behind us, market focus will shift to economic data and central bank policy. Investors should maintain disciplined risk management given the conflicting signals and increased likelihood of volatility heading into Wednesday's Fed decision.
Here’s the breakdown:
- S&P 500 gained 1.47% on Friday following higher-than-expected Nonfarm Payrolls release.
- Futures are indicating a 0.7% lower open today, retracing some of Friday's rally.
- With tech earnings season basically over, the market may suffer a correction or consolidation.
- The markets are eagerly awaiting Fed interest rate decision on Wednesday.
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Paul Rejczak
Stock Trading Strategist