Bank of America strategist Michael Hartnett pointed out that recent turmoil in US financial markets has not reached a scale that would indicate fears of a "hard landing" for the economy, according to Bloomberg.
He notes that while the S&P 500 is down about 6 percent from its mid-July peak, it hasn't dipped below its 200-day moving average. In turn, the yield on 30-year US bonds remained above 4 percent despite the risk aversion.
"Technical levels that would change the narrative on Wall Street from a soft down to a hard down were not breached," Michael Hartnett wrote in a note.
In his view, investors' expectations of a Fed rate cut may mean that their preference for stocks over bonds has not ended due to the sell-off that occurred early last week.
The S&P 500 fell a week ago to its biggest drop since September 2022 as the decline was triggered by a series of weak macroeconomic data, most notably the July US jobs report. But on Thursday, the index rose the most since November 2022, when data on "newly unemployed" did not indicate a significant deterioration in the labor market. Overall, the S&P 500 ended up virtually unchanged over the past week.
Michael Hartnett believes investors should now focus more on the 200-day moving average of the Philadelphia Semiconductor Index and Technology ETF. Possible declines and breaches of these levels could mean the S&P500's next support would be the 2021 peak, meaning a possible 10 percent decline in the index, according to a Bank of America strategist.
