S&P 500 tests key support as traders weigh risk of deeper pullback

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S&P 500 tests key support

Highlights

S&P 500 hovers near its 50-day moving average as leadership narrows, with AI-hardware and bank stocks weakening while credit markets show fresh strain.
JP Morgan's Jason Hunter identifies 7,500 on the S&P 500, about 2.5% below current levels, as a key support; breach could trigger broader correlated selling.
Despite projected Q4 earnings growth of over 20%, rising Treasury yields, widening credit spreads, and dollar strength have eroded the market’s risk buffer.

Technical level and market stress signals

As reported by CNBC, Wall Street is focusing on whether the S&P 500 can hold near its 50-day moving average after the index stalls around levels first reached 11 weeks ago. The market is still described as being in an unbroken uptrend, but leadership has narrowed as rotations between AI-related technology shares and the rest of the market become less steady.

Recent trading has added to that caution. The AI-hardware group has lost momentum sharply, bank stocks are trading weakly after earnings, and credit markets are showing fresh strain. Selling in semiconductors and data-center equities and debt late last week is described as resembling the forced unwinding seen in July, though a tentative bounce in chip stocks on Monday offers only limited reassurance.

Jason Hunter, technical strategist at JP Morgan, says the central question is whether the market is simply in the final stage of rolling corrections before a typical late-year rally, or whether growing bearish divergences are setting up a broader, more correlated decline. He favors the more cautious view, identifying about 7,500 on the S&P 500, roughly 2.5% lower, as a key threshold that would remove the market's benefit of the doubt if broken.

Earnings outlook and broader market implications

Seasonal and earnings-related factors still support the case for a rebound. The fourth quarter following a midterm election year is historically strong, and earnings growth for the quarter is projected to exceed 20% from a year earlier, reinforcing the fundamental backdrop for equities.

Even so, historical precedent leaves room for a sharper decline despite supportive earnings. The article points to 2018, when the S&P 500 fell 19% from peak to trough in the fourth quarter of a midterm-election year even as total index earnings grew by more than 20%.

Financial conditions are also becoming less supportive as Treasury yields rise, corporate credit spreads widen somewhat, volatility picks up and the U.S. dollar strengthens. Together, those pressures suggest the market's cash cushion against a negative surprise is thinning, making the identified S&P 500 support level more important for investors across equities and credit.

In our earlier analysis of the S&P 500’s pullback, we examined how weakness in technology and semiconductor stocks—alongside doubts about the durability of AI-related investment and rising borrowing costs—pushed the index below its 20- and 50-day moving averages. We also highlighted key near-term levels, with resistance limiting rebounds and support zones becoming critical as yields climbed and volatility picked up.

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