- The benchmark S&P 500 fell below a key technical level on an intraday basis Friday, suggesting selling could continue in earnest.
- Further weakness would exacerbate a selloff spurred by President Donald Trump's impending tariffs on aluminum and steel and the hawkish stance that's been signaled by the Federal Reserve.
The stock market is playing with fire.
The S&P 500— fresh off its worst month since January 2016 — fell more than 1% for a third straight day on Thursday, and was down as much as 1.1% on Friday. Perhaps even more jarring has been the benchmark's descent below its 100-day moving average, a key technical threshold that, when broken, could lead to further selling.
The index fell as low as 2,647.32 in early trading on Friday, slipping below the 100-day technical level of 2,665. It echoed Thursday's action, which saw the S&P 500 briefly break the moving average before closing back above the technical trigger. Still, the temporary breach appears to have portended further selling, with the benchmark taking a beating for a fourth day in a row.
With that in mind, it's important to note the use of technical analysis is far from a foolproof investment strategy. While it can signal shifts in sentiment and trader behavior, it's meant to be more of a complementary tool.
That's certainly true in this situation, where inflammatory comments from President Donald Trump about a possible trade war are likely most directly responsible for worsening the ongoing global market selloff. When combined with his confirmation on Thursday that he plans to instate huge tariffs on steel and aluminum, Trump's latest actions are unquestionably roiling markets.
And then there's newly appointed Federal Reserve Chairman Jerome Powell, whose recent guidance has been interpreted as hawkish by investors worried about an acceleration of monetary tightening. That's what started the S&P 500's current skid in the first place.
So what's an investor to do? One option would be to pile into small-cap stocks, which derive a lower percentage of sales from overseas, and are therefore less exposed to trade war risk. Or they could flee stocks entirely — which could exacerbate the whole situation.
Regardless of what happens, it's become abundantly clear the market's listless, low-volatility days of 2017 are over. Stay tuned for the next twist.
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