SUPERNEWS

Macro

Piper Sandler Sees S&P 500 Dropping 10%, Cautions on Rally

Piper Sandler predicts S&P 500 fluctuations between 4,600-5,100, signaling a cautious outlook amid uncertain Federal Reserve policies.

By Barry Stearns

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5/6, 12:29 EDT
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Key Takeaway

  • Piper Sandler predicts the S&P 500 will fluctuate between 4,600 and 5,100, suggesting a potential 10% drop from recent highs.
  • Recent market rally deemed "questionable" with advice for a tactical, wait-and-see investment approach.
  • Despite breaking above the 50-day moving average, current conditions and technicals cast doubt on the rally's sustainability.

Market Rally Under Scrutiny

Piper Sandler's chief market technician, Craig Johnson, has expressed skepticism about the recent uptrend in the stock market, suggesting that the rally might not be sustainable. According to Johnson, the S&P 500 is expected to experience fluctuations within a High-Level Trading Range (HLTR), with predictions of movement between 4,600 and 5,100 in the upcoming months. This analysis comes in the wake of a surge in stocks following a soft April jobs report, which fueled optimism for potential Federal Reserve rate cuts in 2024, despite the S&P 500's more than 8% increase year to date.

Technical Indicators Signal Caution

The firm advocates for a cautious, tactical approach given the current market conditions and technical indicators. The major U.S. stock indices have recently gapped up to challenge resistance at their respective 50-day Moving Averages (MAs), a critical technical threshold. Notably, the S&P 500 has broken above its 50-day MA for the first time since April 12, while the Nasdaq also trades above its 50-day average, signaling strong momentum but also warranting a more measured investment strategy.

Macro Challenges for Equities

The broader economic cycle presents additional hurdles for equities, as highlighted by various analysts. Simon White notes the historically lackluster performance of the bull market, particularly for smaller companies. Tatiana Darie raises concerns about the Federal Reserve's rate policy, suggesting that if the Fed does not ease policy by year-end, the market could enter uncharted territory given the central bank's history of not maintaining steady rates for long after a tightening cycle. Furthermore, Alyce Andres points to persistent inflation and the potential for mispriced bond yields to rise as the Fed's normalization efforts wane, indicating a shift towards a reflationary narrative.

Street Views

  • Craig Johnson, Piper Sandler (Neutral on the market):

    "This relief rally in equities is questionable at best... Our outlook calls for the SPX to fluctuate between 4,600 and 4,800 on the low end and around 5,100 on the upper end in the coming months."