Shifting Momentum in U.S. Stocks

The recent surge in U.S. stocks to all-time highs is losing steam, as seasonal trends in March could lead major indexes into a rough patch, as stated by Jonathan Krinsky, chief market technician at BTIG.

Technical Analysis Perspective

While the S&P 500 remains technically sound, Krinsky notes a slowdown in momentum with each consecutive rally. For the large-cap index currently hovering around 4,965 points, breaking below 4,920 points is crucial to alter its short-term trajectory.

Market Outlook

Amid a backdrop of uncertainty surrounding the Federal Reserve's monetary policy and growing enthusiasm for artificial intelligence applications and robust corporate earnings, U.S. stocks have seen a tumultuous start to the year.

Year-to-date returns for key U.S. benchmarks remain strong, driven by mega-cap tech stocks - also known as the Magnificent Seven. Despite this, with the S&P 500 up almost 4% in 2024, and the Nasdaq Composite and Dow Jones Industrial Average climbing 3.5% and 2.1% respectively, there are underlying concerns of downside risks ahead for Wall Street.

Potential Downside Risks

Krinsky highlights potential downside risks as seasonal patterns may exert downward pressure on the market in the coming month. For a detailed breakdown, refer to the chart provided below for further insights.

Market Analysis by Krinsky

Krinsky, an expert in the field, emphasizes the significance of seasonal patterns in the market. He notes a distinct trend over the past year, highlighting key points from the mid-March banking crisis low to the late-October dip, and now at a mid-February peak. Despite being just one part of the puzzle, Krinsky points out the negative momentum divergences, suggesting potential weakness into March.

Small-Cap Leadership Emerges

In a notable shift, Krinsky predicts that small-cap stocks are poised to take the lead. Observing a subtle alteration in the correlation between the Nasdaq-100 and the Russell 2000 recently, he sees a promising sign for small caps.

Market Volatility and Index Performance

Notably, small-cap stocks are experiencing significant volatility, with the Russell 2000 in particular showing fluctuation. This trend is reminiscent of past patterns, indicating a dynamic market environment.

Investor Sentiment and Future Projections

Investors are closely monitoring the market as major indexes experience declines. Anticipation surrounds the upcoming Fed meeting minutes release and Nvidia's earnings report, set for Wednesday afternoon. Consequently, market participants are observing closely as events unfold.