The S&P 500 index ended the week down 5.6%.
The index has now fallen by almost 10% from its high two months ago.
About half of the stocks included in the index have fallen by 20%.
The S&P 500 ended the week down 5.6% and is now 9% down from its two-month high, according to CNBC’s Michael Santoli. What is the outlook for the index in the final weeks of the trading year?
Multi-week sell-off and mixed signals
The S&P 500 and other indices are now on a three-week losing streak, but there are not many signs of excessive panic among investors, Santoli wrote. A more appropriate way to describe the current market sentiment could be to “moderate the heightened optimism of a few weeks ago”.
In the options market, traders may be more nervous about the recent surge in put buying. A put option is used when an investor believes that the underlying stock will move down rather than up.
Meanwhile, company managers have “largely stopped” selling shares of the company they manage.
Other signs are slightly more worrying, including the CNN Fear & Greed Index, which has dropped to 30 on a scale of 1 to 100, and that is “well into the area of fear,” he wrote.
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Summary of the S&P 500
The S&P 500 index closed Friday at 3,269.96, down 40.15 points or 1.21%, Santoli continued. From a technical point of view, the index has dropped below the support level of 3,400 points, and now all eyes are on the 3,200 mark to see if it can hold.
The 3,200 mark not only represents the final low of September, but also the high of June and a break-even point since the beginning of the year, he wrote. Below the 3,100 level is the 200-day moving average, and when the index falls, it serves as a “true test” to see if the recent bullish mood can return.
As for the individual stocks within the S&P 500 index, about half of them are at least 20% away from their highs. The earnings season was not a great help as stocks traded “poorly” based on their results, even though earnings forecasts for the future were “kept high”.
The S&P 500’s valuation in terms of next year’s earnings is “by no means cheap”, but at 20 today, it is still cheaper than 23 just two months ago, Santoli said.
Should investors buy shares at a lower valuation? A vaccine against COVID-19 could be on the market within a few weeks, and this would give the market a positive tailwind. But it might be premature to jump to that conclusion.
“And whatever the chances for approval of a Covid vaccine are now, it is closer and no less likely than a few months ago,” he wrote.