Markets are facing an early summer swoon, and it’s not even the July 4 weekend.
The insight: Amid a week of heightened volatility, especially for tech stocks, the S&P 500 (^GSPC) closed below its 50-day moving average for the first time in more than two months on Friday, according to Yahoo Finance AlphaSpace analysis. The index appears set to start the week under this level based on premarket trading action on Monday.
The 50-day moving average is one of the most widely watched technical indicators on Wall Street, calculated simply by averaging a stock or market’s closing price over the past 50 trading days and plotting it as a continuously updated line on a chart. It gives investors a real-time snapshot of a stock or market’s medium-term price trend.
Read more: How to protect your money during turmoil, stock market volatility
When a stock or market is trading above the 50-day moving average, it is generally considered to be in a healthy uptrend, signaling that buying momentum is stronger than selling pressure. A stock or market trading below that line is often viewed as technically weak and vulnerable to further downside.
The reason: The stock market has experienced heightened volatility over the past week as investors have cashed out of red-hot AI names due to valuation concerns. Investor anxiety has only worsened because of reports that OpenAI (OPAI.PVT) is considering delaying its initial public offering until 2027 and a dramatic post IPO sell-off in Elon Musk’s SpaceX (SPCX). The combination sparked fears across Wall Street that massive corporate infrastructure spending on AI might be slowing down.
“AI stocks are experiencing an ‘earnings bubble,'” BCA Research strategist Peter Berezin warned in a note. “When this bubble bursts, equities will fall 30% to 50%. For now, we recommend a slight underweight on equities but will shift to a more defensive stance if our market-timing indicators deteriorate further.”
Adding to this tech drag, fresh macroeconomic anxiety over sticky inflation and stronger-than-expected economic data forced investors to reprice the Federal Reserve’s policy path, raising angst that interest rates will remain higher-for-longer.
The bottom line: As traders often say, the trend is your friend — or your worst enemy. Keep that in mind with the S&P 500 below the key 50-day moving average.
Brian Sozzi is Yahoo Finance’s Executive Editor and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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