The frenzied rise in the stock market in 2024 has finally come to a halt.
The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) posted their worst one-day declines since 2022 on Wednesday, and their declines widened on Thursday. Over the past 10 days, the benchmark S&P 500 index has fallen about 3%, and the Nasdaq index has fallen more than 6%.
The recent pause in the bull market is consistent with what equity strategists say in the recently released Volume 3 of the Yahoo Finance Chartbook. Keith Lerner, Trust Co.’s co-chief investment officer, noted that in years when the S&P 500 index is up more than 10% in the first half, the second half typically sees an average decline of about 9%.
Through the end of June, the S&P 500 index was up about 14%.
“The recent market volatility we have been anticipating is likely to be more pronounced in terms of price and time,” Lerner said in a note to clients on Thursday.
It is clear that high-tech companies are the main players in the recent market contraction. Of the 11 sectors in the S&P 500, only two have negative returns over the past month: information technology and communications services. In an interview with Yahoo Finance, Lerner argued that the recent decline in tech stocks makes sense given the sector’s historical rally.
In late June, tech companies outperformed the S&P 500 for the largest two-month period since 2002, according to Lerner’s research. Lerner believes that extreme levels of market outperformance usually result in a snapback, similar to when a rubber band is overstretched.
“When you reach a breaking point, a little bit of bad news can have a big impact,” Lerner said.
A “bit of news” came through the earnings reports of Alphabet (GOOGL, GOOG) and Tesla (TSLA) after the bell on Tuesday, leading to Wednesday’s decline. Mr. Lerner pointed out that while the company’s performance was not bad, it failed to impress investors who had set high hurdles for this fiscal year.
Next week’s expected earnings for Apple (AAPL), Meta (META), Microsoft (MSFT), and Amazon (AMZN) will be the next test of investor sentiment in the tech sector. Lerner reasoned that the technology industry’s latest earnings could exceed investors’ narrowed 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. “The money is going to go back there. I think there’s probably going to be a period of rest, a pause to refresh.”
Traders work on the floor of the New York Stock Exchange during afternoon trading on April 2, 2024 in New York City. (Michael M. Santiago/Getty Images) (Michael M. Santiago via Getty Images)
Brian Belsky, chief investment strategist at BMO Capital Markets, also highlighted the possibility of a lull in stock market gains in the latest chart book. Similar to Lerner’s analysis, Belsky’s research, dating back to 1949, shows that the second year of a bull market averages a decline of about 9%. The most recent bull market began in October 2022.
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Belsky told Yahoo Finance on Tuesday that the market is “ripe for a pullback from a sentiment standpoint.” But for Belski, this is a “buying opportunity.” According to his research, the market typically recovers an average of 14.5% from the bottom of the second-year bull market drawdown he studied.
“I think the stock price will go up at the end of the year,” Belsky said.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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