The stock market could see further damage if one key index can’t hold an important technical level, according to Bank of America investment strategist Michael Hartnett. Looking at several key indexes, Hartnett said in a client note Thursday that selling pressure has persisted even in less tech-sensitive parts of the market, specifically citing the S & P 500 Equal-Weighted index. If that can’t hold onto the 5,540 level — it closed Thursday at 5,501 — it could signal further pressure on the more widely followed S & P 500 market-cap weighted index. More specifically, he said the market-cap index could fall to its 200-week moving average of 3,941, or another 4.7% from Thursday’s close, “before [a] trading rally.” .SPX YTD mountain S & P 500, YTD While still up 7.8% for 2023, the S & P 500 has tumbled about 14% from its all-time high. The index is weighted 28% to the information technology sector, by far the most of its 11 sectors, so the 9% slide in the sector over the past three months has an outsize impact. Hartnett’s outlook comes during a seesaw year for Wall Street. He noted that Wednesday’s release of a stronger-than-expected GDP report for the third quarter was greeted by a huge market sell-off. “What could be more 2023 than a 5% US GDP print being greeted by most recessionary daily tape since SVB,” he said, referencing the Silicon Valley Bank collapse in March. The bank’s proprietary Bull & Bear Indicator is giving a contrarian buy signal for the second straight week. In the last 20 times that has happened, global stocks have risen an average 6%. However, Harnett said he won’t get bullish until the “3Ps” kick in: “bearish positioning combines with recessionary Profits to Policy easing.” He also talked up a 25/25/25/25 “permanent portfolio” of cash, commodities, bonds and stocks that he said will outperform the traditional 60/40 stocks-to-bonds mix.
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