S&P 500 On A Knife Edge

$900 Billion In Market Cap Erased From S&P 500

On Friday, the S&P 500 erased $900 billion in market cap after posting a new all-time high on Wednesday.

Uncertainty surrounding the direction of the Trump administration, coupled with weak PMI data and Walmart’s growth outlook for 2025, contributed to a weakening growth narrative.

The S&P 500 is currently sensitive to economic data and earnings, whether on the fundamental, macro, or technical side.

Investors in the S&P 500 are constantly looking for recession risk, whether a slowdown in GDP, negative payroll reports, or any other indicator that has signalled recession before historical recessions.

S&P 500 Valuations

The S&P 500 is priced to perfection. Valuations are high, and any change in economic data outside of stock market expectations will likely result in a sharp correction.

Since the early 1980s, stocks have gone up unless and until the market perceives a recession. That is the only time stocks go down and stay down for any prolonged period.

Bonds respond to a growth paradigm that may be different from the stock market. They respond to other types of downturns and periods of stagnation that the stock market ignores.

Bonds have been signalling that we are likely in one of those periods.

Economies Have Flatlined

The global macroeconomy has stopped growing. That is seen more clearly outside the U.S. In real terms, since 2022, and when you adjust for prices, volumes have stopped, and economies have flatlined.

Since 2022, economies have been in a period of chop. The data is positive in some months; in others, it falls off again. Overall, the data goes nowhere, and that in itself is a contraction.

A good example is the U.S. labour market. Everyone says that the labour market is strong and payrolls are growing, particularly if you look at payroll numbers month to month.

However, while payroll numbers are growing, the trend in payroll growth has slowed since 2022 and is no longer enough to generate a complete recovery from the Covid period.

So, there’s slow growth in the macroeconomy and labour market, but it doesn’t look like a traditional recession. Therefore, the assumption is that the economy must be strong.

On that basis, retail investors who believe the economy is not in recession will continue buying stocks.

S&P 500 Key Levels:

The S&P 500 opens today in positive gamma. The gamma flip zone is 5995, call resistance remains 6140, and put support is 5880.

Today’s price action, Nvidia’s earnings and Friday’s inflation data will determine the direction of the S&P 500.

If the S&P 500 closes in positive gamma today, it will likely find support and move higher. However, if it closes below the gamma flip zone today, that could lead to further downward momentum this week.