According to market strategist David Rosenberg, the rally in the S&P 500 stock index may lose momentum through November. However, there is optimism that the Nasdaq Composite may experience a year-end rally despite potential stress in the coming weeks.
U.S. stocks have performed well this year, although they are expected to close the week mostly lower. The Dow Jones Industrial Average (DJIA), S&P 500 (SPX), and Nasdaq Composite (COMP) have recorded year-to-date gains of 4.4%, 15.9%, and 30.9%, respectively, based on FactSet data. This week, the Dow has seen a marginal increase of 0.1% to reach 34,660, while the S&P 500 and Nasdaq Composite have both declined by 0.1% and 0.4% to settle at 4,511 and 13,957 respectively as of Friday afternoon.
Challenging Momentum Trends
Rosenberg, a respected economist formerly of Merrill Lynch and currently the president of Rosenberg Research & Associates Inc., highlights that their primary medium-term momentum indicator for the S&P 500 has been on a downward trend since late July. Additionally, weak momentum is evident in all but one of the index's sectors (excluding energy). These factors combined suggest that broad-based momentum pressures will likely continue heading into November, as reported in Rosenberg's note on Friday.
The Future of U.S. Equities: A Technical Analysis
The recent trajectory of large-cap U.S. equities is showing signs of a reversal, warns economist Rosenberg. He predicts that there is a growing risk of a test of chart and trend support within the 4,195-4,100 range.
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Rosenberg also expects the Nasdaq Composite to experience continued pressure in the coming weeks due to a combination of downward trends and momentum. The index has already broken below its post-March trend line, which previously acted as a support but is now acting as resistance. Additionally, weak momentum since August is expected to persist until late October.
If the index declines below 13,161, it could signal a breakdown leading to further weakness towards levels around 12,700-12,600, and potentially even 12,200.
However, despite these short-term challenges, the long-term momentum of the Nasdaq Composite points to a peak around December-January.
"This condition suggests that, although we may see a temporary pullback, any subsequent year-end rally is likely to have bearish long-term implications for the primary trend," concludes Rosenberg.