Ahead of the annual Jackson Hole Economic Symposium, the US stock market is showing signs of stress, with the S&P 500 index (SPX) plummeting to the $6,388 support level. This correction was triggered by a decline in market capitalization of the technology sector, which has long been the key driver of major American indices.
Investors have trimmed their positions in tech stocks on growing concerns that the rally, originating in April, has overextended itself without the necessary corrective moves. According to Bank of America (BofA) strategists, the upward momentum, which pushed the shares of the so-called “Magnificent Seven” off their April lows, looks overstretched. They have repeatedly highlighted the risk of a bubble forming in US stocks this year. Ahead of the earnings report release next week, Nvidia's sell-off is critical for global tech investors. Given the stock's strong run-up since April, this seems to be a headwind in the near term.
The market is also focused on Jerome Powell’s upcoming monetary policy comments. Data published before the next Federal Reserve (Fed) meeting could have a great impact on the central bank’s strategy, BofA analysts said. Investors are awaiting clues on the regulator’s long-term interest rate path, which remains highly uncertain. The recent US employment report indicated a slowdown in hiring. This typically reduces the impetus for rate cuts. Meanwhile, persistent consumer price growth remains the central bank’s key challenge, with the latest data showing the sharpest rise in US wholesale prices in three years. This fuels fears of tariff-induced inflation, which has kept Fed officials refraining from reducing borrowing costs so far this year.
Given all the aforementioned factors, the current pullback in SPX should be considered as a technical correction, with the target to return to the breached level of $6,435.
The overall recommendation is to buy SPX, with a Take Profit order placed at the level of $6,435 and Stop Loss set at $6,360.
The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
