Since the beginning of November 2023, less than 30% of stocks in the S&P 500 have traded above the 50-day moving average, which clearly shows the weakness of the current market breadth. Compared to 85% at the end of March and 92% at the beginning of January, this significant decline highlights a dramatic reversal in market dynamics.

The 50-day moving average is often viewed as a barometer of the short-term health of the stock market. The overall fall below this level indicates that most areas of the market are facing downward pressure.

This shift comes as geopolitical tension in the Middle East continues to escalate and concerns about inflation resurface. Together, these factors prompted traders to take a more cautious stance in April.

On Wednesday, the SPDR S&P 500 ETF Trust closed down 0.3% for the fourth consecutive trading day. This is the longest losing streak since early January.

Inflation concerns

The inflation rate rose to 3.5% in March, exceeding economists' expectations and continuing the three-month growth trend.

Powell said on Wednesday: “Recent data clearly does not give us more confidence; on the contrary, it shows that it may take longer than expected to achieve this confidence.”

This sounds like the government is delaying hopes of cutting interest rates. As inflation became stubborn, the outlook for interest rates changed significantly.

The futures market currently predicts that by the end of this year, the Federal Reserve will cut interest rates by about 40 basis points, or less than two 25 basis points.

S&P 500 outlook: Has it ushered in a correction?

Investment analysts are closely watching the development of these markets.

Veteran investor Ed Yardeni recently predicted that the S&P 500 could retest the 200-day moving average around 4,700 points, which would mean “a typical 10% correction.”

Adam Turnquist, chief technical strategist at LPL Financial, said, “The S&P 500 index is experiencing its first real fluctuation this year.”

The index fell 4.4% in April, and this has begun to “cause some technical damage.” Notably, the S&P 500 has broken through its short-term upward trend and fell below the “20-day and 50-day moving averages”, and the 5,000 point mark is the next key support level.

Turnquist emphasized that long-term market breadth indicators are stronger, and “nearly 70% of the S&P 500 index constituents are still above the 200-day moving average.”

He added: “Despite recent shocks, the defensive sector's long-term breadth indicators have not suffered significant damage, which indicates that market leadership remains firm despite recent sell-offs.”

Bank of America technology strategist Stephen Suttmeier emphasized that the S&P 500 index has achieved year-on-year growth for 12 consecutive months, which may indicate good future prospects.

The data shows that if this trend continues for at least 20 months, the index could rise 17.1% (6150 points) by November 2025.

However, Suttmeier warned of the immediate risks. The S&P 500 index is difficult to break through around 5,500 points during the typical fluctuations in April and May of the general election year, which indicates that it may face challenges in the near future.

If the index falls, the support levels of 5,000 points, 4,800 points, and 4,600 points will be critical.

The three-month Volatility Index (VIX) shows that compared to historical levels and the percentage of stocks with stock prices above the 50-day moving average, there was no serious oversold situation in the stock market, which indicates that the market may need a further correction to establish a stronger low.