The deterioration of market conditions worldwide is a headache for market participants. Analysts call on monetary authorities to take urgent action to avert a collapse. According to Michael Hartnett, managing director and chief investment advisor at Bank of America Global Research, turbulence in the global financial markets is gathering pace, but it "has not yet reached levels that signal a hard economic landing."
Meanwhile, market participants are making efforts to navigate through turmoil. Even though the broad-profile S&P 500 index tumbled by 6% from its record high in mid-July, it remained above its 200-day moving average of about 5,050 points. Besides, the yield on 30-year US Treasuries has not dropped below 4%.
Hartnett believes that technical levels capable of "changing the sentiment on Wall Street from a soft landing to a hard one have not been breached yet." In this context, current expectations for a Federal Reserve rate cut mean that the market downturn has not destroyed the "preference for stocks over bonds."
Michael Hartnett advises that the next technical levels to watch will be the 200-day moving averages for the Philadelphia Semiconductor Index and the exchange-traded fund, tracking major technology companies.
"A renewed market downturn would lead to the next support level for the S&P 500 being tested at the 2021 highs, implying a further 10% drop in the index," the expert added.
In July, global markets went through an upheaval as investors worried that the Federal Reserve was cutting interest rates too slowly. However, despite the adverse conditions, the S&P 500 rebounded after the nonfarm payrolls showed cooler-than-expected employment in the US private sector in July. As a result, the S&P 500 skidded by just 0.5% for the week.
According to the BofA analyst, as investors await the Fed's first rate cut, they should focus on selling. He suggests that in the second half of 2024, AI-related stocks may experience volatility until their profits increase. Hartnett also highlighted that assets that are "constrained by 5% yields, will breathe more easily with yields of 3%-4%," including government bonds, REITs (Real Estate Investment Trusts), small-cap stocks, and some troubled emerging markets stocks, such as those from Brazil.
