Bank of America recently issued a warning that a hard landing in the economy could be on the horizon if the S&P 500 drops below a key technical level. According to Bank of America strategist Michael Hartnett, the S&P 500’s 200-day moving average is a crucial indicator that could signal a larger downturn in the economy. Hartnett emphasized that certain technical levels must be maintained to prevent a significant correction in the stock market.
The 200-day moving average of the S&P 500, currently at 5050, is a critical threshold that investors should watch closely. As of Friday, the S&P 500 was trading at 5,317, approximately 6% above its 200-day moving average. If the index falls below this level, it could trigger a 10% correction, according to Bank of America.
Hartnett also highlighted the importance of key sectors like semiconductors and Big Tech in maintaining their support levels to avoid further declines in the market. The SOX Semiconductor Index and the XLK ETF both recently tested their 200-day moving averages as technical support levels during a period of increased market volatility.
While the stock market has not yet breached these critical technical levels, Hartnett remains cautious about the outlook for the US economy and stock market. He believes that for a soft landing to occur, the Federal Reserve would need to cut interest rates, leading to a boost in investor sentiment. However, Hartnett expressed concerns about the price action in certain areas of the stock market, such as biotech and US retail stocks.
Hartnett’s strategy involves selling stocks after the Fed implements its first rate cut, which is expected to happen at the upcoming policy meeting. He also highlighted growing risks in AI-related stocks as they strive to demonstrate a return on investment from their significant GPU spending.
In conclusion, Bank of America’s warning of a hard landing if the S&P 500 drops below its 200-day average serves as a reminder for investors to monitor key technical levels and sector performance closely. The stock market’s reaction to these levels could provide valuable insights into the future direction of the economy and stock prices.