The S&P 500: Is 3,800 the next stop?

Stay Cool...

Yesterday, the S&P 500 broke the critical level of 4,300 once again. Today, it drifted further down. In our previous posts from the end of January, we wrote about buying the correction and the possibility of the S&P 500 falling further into bear market territory (more than 20% down from the peak) after a rebound in the short-term.

The S&P 500 charts formed the "head and shoulders" pattern that in 93% of cases results in a bear market. It seems possible that if the S&P 500 does not recover above 4,300 soon, it could drop by another 10%. This will get it to around the 3,800 level.

Similarly to the beginning of this year, major contributors to the S&P 500 fall would be formerly "safe haven" Tech stocks (Facebook, Amazon, Apple, Netflix, Microsoft, Google) and shares of the smaller growth companies with a limited visibility of cash flows.

Unfortunately, if investors start running to the doors, the sell-off might bring down shares in Airlines, Cruises and other sectors related to the post pandemic reopening. Even stocks in the Energy sector (that have outperformed everything else so far) could get impacted, as a slowdown in the economy would result in a lower demand for energy.

Traditionally, after a bear market, the S&P 500 shows a strong recovery during the following year. This time, the recovery could be even stronger as part of the current pressure resulting from the geopolitical events that are not likely to cause long-term damage to the markets.

Gold, cash and staying cool are the three things that could help us survive the winter.

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This blog does not provide investment advice. Please do your own research and talk to professionals before investing.

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