3 clues about what's next for the S&P 500 after weeks of tariff-fueled selling

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3 clues about what's next for the S&P 500 after weeks of tariff-fueled selling.

stock :: 8hrs ago :: source - business insider

By Matthew Fox

From the trade tariffs to President Donald Trump threatening to fire Federal Reserve Chairman Jerome Powell, investors are grappling with sky-high uncertainty that could fuel an economic downturn.

This noise has resulted in considerable volatility. After hitting a record high in January, the Samp;P 500 declined nearly 20% before rallying. On Monday, the index fell more than 2%, but has rebounded roughly the same amount today.

Here's a summary of key indexes as of 12:05 p.m. in New York:

S&P 500: 5,270.72, up 2.2%
Dow Jones Industrial Average: 38,985.76, up 2.2%
Nasdaq Composite: 16,273.40, up 2.5%

During periods of significant uncertainty, technical analysis can be useful for investors, helping them cut through the noise and get a clear road map of the stock market's future direction.

"A multi-front trade war is by itself a lot for stocks to handle, so adding a Fed independence crisis on top of it has markets understandably jittery," said Jeff Buchbinder, chief equity strategist for LPL Financial, said.

LPL Research

1. The long-term uptrend is intact

The first big takeaway from the Samp;P 500 chart is that even after the SP 500's 16% decline, the long-term uptrend remains intact, evidenced by the index bouncing off of rising trend-line support defined by the lows of March 2020 and October 2022.

"This suggests the path of least resistance from here is likely higher, but not without near-term risks," LPL Research said.

2. The capitulation event probably happened

The intense selling in the stock market earlier this month likely marked a capitulation event, suggesting that the index's decline to around 4,835 could mark "the low" of this current sell-off.

Strengthening that case is the fact that the low occurred at two levels of support that converged: at the horizontal support line market by the S&P 500's peak in January 2022 and the rising diagonal trend line that began in March 2020.

"Several items on our checklist for a durable low were checked, including historically oversold conditions at the index and constituent level, washed-out readings across market breadth measures, peak fear likely being reached, and record-level trading volume," LPL Research said.

3. Capitulation doesn't mean volatility is over

While the stock market likely experienced its capitulation event, that doesn't mean the volatility is over or that there can't be further downside ahead.

In fact, LPL said that "underwhelming participation" among stocks and the "lack of cyclical leadership" suggest an elevated risk for the S&P 500 to retest its low of around 4,835.

This support zone "is essential for the S&P 500 to maintain," LPL said.

The S&P 500 traded higher by about 1.5% on Tuesday to 5,234.

Investors should stay the course

For Rick Gardner, chief investment officer at RGA Investments, investors shouldn't panic in the face of heightened volatility.

"Our message to investors is to stay the course, use pullbacks as opportunities, and don't try to time the bottom," Gardner told BI on Tuesday.

Gardner said he is encouraged by the washout in investor sentiment, which has hit bearish extremes recently.

"While the past few weeks of volatility is uncomfortable, stocks are still trading at levels seen roughly one year ago, when sentiment was much better than it was now," Gardner said.

This article was first featured on Business Insider

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