The strong stock market recovery of 2024 has finally paused.
The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) posted their worst one-day declines since 2022 on Wednesday and extended those losses on Thursday. Over the past 10 days, the benchmark S&P 500 has fallen about 3%, while the Nasdaq has fallen more than 6%.
The recent pause in the rally’s recovery is consistent with the predictions of equity strategists in our recently released third volume of the Yahoo Finance Chartbook. Keith Lerner, Truist’s co-chief investment officer, noted that in years when the S&P 500 is up more than 10% in the first half of the year, the second half typically sees an average decline of about 9%.
By the end of June, the S&P 500 was up about 14%.
“This more volatile market development of late, which we anticipated, will likely continue in terms of price and time,” Lerner wrote in a note to clients Thursday.
The technology sector has been the main driver of the recent market decline. Information technology and communication services are the only two of the 11 S&P 500 sectors to have posted negative returns over the past month. In an interview with Yahoo Finance, Lerner said the recent selloff in the tech sector makes sense given the sector’s rally.
In late June, technology stocks outperformed the S&P 500 on a two-month rolling basis, the strongest performance since 2002, according to Lerner’s research. Lerner believes that, like a rubber band that stretches too far, extreme levels of market outperformance typically lead to a rally.
“When you’re at this point, a little bad news can go a long way,” Lerner said.
The “small news” came from Alphabet (GOOGL, GOOG) and Tesla (TSLA) financial results released Tuesday after the market closed ahead of Wednesday’s selloff. Lerner noted that the results weren’t bad but failed to impress investors, who had set the bar high heading into this earnings season.
The next test of investor sentiment in the tech sector will be earnings from Apple (AAPL), Meta (META), Microsoft (MSFT) and Amazon (AMZN) due next week. Lerner believes that after the market reset in recent trading sessions, there is a chance that the latest wave of tech earnings could exceed investors’ now-diminished expectations.
“I think the secular story of this bull market is still intact,” Lerner said. “Money will come back out there. I just think it’s more likely that we need a period of rest and some kind of break that refreshes us.”
Brian Belski, chief investment strategist at BMO Capital Markets, also highlighted the likelihood of a pause in the stock rally in the latest edition of our Chartbook. Similar to Lerner’s analysis, Belski’s work shows that since 1949, the second year of a bull market has seen an average decline of about 9%. The most recent bull market began in October 2022.
Belski told Yahoo…
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