traviswolfe
The S&P 500 (SP500) should tumble 10% in the summer due to a correction, said Craig Johnson, chief market technician at Piper Sandler.
In a market note, he said that investors are failing to notice the red flags in the market, including poor market breadth and declining momentum.
The S&P 500 (SP500) index is up 14.54% year-to-date, but down 0.09% from five days ago, and down 0.10% from yesterday. A 10% drop from yesterday’s close of 5,469 would place the index at 4,920.
“When driving a car and an Engine Warning Light pops on, most drivers would safely pull over the vehicle and assess the meaning of the Warning Light(s) on the car’s dashboard…” Johnson wrote. “Like the car dashboard, equity market warning lights are starting to flash, but most investors can’t hear or see them as the F.O.M.O (fear of missing out) in the markets is cranked up, and investors are just enjoying the ride.”
He said that the longer those warning lights flash, the more painful the repair bill will be, alluding to an inevitable market correction.
The outperformance of the AI mega-cap tech stocks such as Nvidia (NVDA) has raised the S&P 500 (SP500) and the Nasdaq Composite (COMP:IND) higher this year by about 15% and 18%, respectively.
Last week, the S&P 500 (SP500) reached 5,500 for the first time. However, Nvidia (NVDA), which briefly became the world’s most valuable stock last week, is now down 10% from its 52-week-high.
Johnson believes the S&P 500 (SP500) is “overdue for maintenance,” and a 10% correction is to follow, taking the index back to the rising 200-day moving average/lower end of the upward trending price channel off the 2022 lows.
He expects the S&P 500 (SP500) to end the year at 5,050, down 7% from yesterday. He also said he is reducing his equity exposure to 80% from 90% and that he is upgrading industrial stocks (XLI) to overweight from neutral, and downgrading services to neutral from overweight.