S&P 500 Eyes Bounce Amid Correction, Support at 4,700-4,800

Key Takeaway

• Market analysts predict a short-term stock market bounce but caution the correction phase isn't over, with S&P 500 support seen between 4,700-4,800.
• Despite potential for a near-term rally, broader consensus suggests selling now is not advisable; investors encouraged to buy dips cautiously.
• Technical indicators and historical patterns hint at stronger market performance expected from June to August in first-term election years.

Market Seeks Stability Amid Correction

The S&P 500 experienced a significant downturn, marking its worst week since March 2023, with a more than 5% drop from its 52-week high. This decline was largely attributed to concerns over persistently high inflation and the anticipation that the Federal Reserve might maintain elevated interest rates longer than previously expected. Despite these challenges, Monday saw an attempt at recovery, spurred by optimism for a short-term bounce, particularly as the market enters a week filled with earnings reports from major technology firms.

Analysts Predict Tactical Bounce, Caution Remains

Technical analysts, including JC O’Hara of Roth MKM, suggest that while a near-term market bounce is likely, the broader correction phase is not yet complete. O’Hara identifies potential support for the S&P 500 between 4,700-4,800, indicating a possible further decline before stabilization. Similarly, Oppenheimer’s Ari Wald and BTIG’s Jonathan Krinsky echo the sentiment of a tactical attractiveness in the market, yet they advise caution, suggesting the bottom may not be immediately forthcoming. Wald anticipates support at 4,800, with a true bottom several weeks away, while Krinsky sees a potential pullback to 4,700.

Earnings Season and Market Sentiment

The current earnings season is pivotal, with significant attention on the "Magnificent Seven" tech giants expected to drive S&P 500 profit growth. Despite a slight downgrade in 1Q earnings-per-share growth expectations, analysts remain optimistic about the potential for earnings to exceed lowered forecasts, potentially supporting a market rebound. This week, being the busiest for S&P 500 first-quarter earnings, will be crucial in determining the market's direction, with Tesla's earnings report being highly anticipated.

Street Views

• JC O’Hara, Roth MKM (Neutral on the S&P 500):

  "Washed out and deep oversold conditions have not expanded to the point we feel confident a real low has been formed, even as a near-term bounce is likely... History suggests we are nearing a tactical low with a growing likelihood of a bounce developing. This may not be the optimal ‘low’ to buy, but selling at this point is not something we recommend."

• Tom Lee, Fundstrat (Bullish on stocks):

  "I think as long as inflation tracks better than expected, I think we’re in a good position to rally."

• Ari Wald, Oppenheimer (Neutral on the S&P 500):

  "Stocks appear tactically attractive... While we think the S&P may be within 2-4% of its correction low, the final inflection point may still be several weeks away... For now, investors should use down days opportunistically and keep near-term expectations balanced."

• Jonathan Krinsky, BTIG (Neutral on the S&P 500):

  "We anticipate a bounce to materialize early this week... So far, the SPX’s correction stands at -5.9% on an intraday basis... While we don’t expect things to play out the same from here, it’s worth noting that a similar final drawdown would bring SPX to ~4700."