Market Volatility Pushes the S&P 500 Below the 50-Day Moving Average
The U.S. equity markets continue the bumpy ride this week as rising yields continue to weigh on stocks. On Thursday, the S&P 500 was down 1.34%, while the tech heavy NASDAQ Composite decreased 2.11%.
The 10-Year U.S. Treasury Yield has been on the rise since the summer and over the last 30 days, it has spiked up very quickly. That has spooked the stock market and has led to big down days, like yesterday.
The 10-Year U.S. Treasury Yield is considered the risk-free rate and the starting input when doing stock valuations. When this yield increases, stocks are discounted at a higher rate and that pushes the intrinsic value of stocks lower, which is why investors have been worried with the recent rise. However, if the cashflows from the companies are expected to increase because of a strong economic outlook, stocks would not be expected to decrease even with a rise in yields.
This is the debate that has been going on and why the markets have gotten more volatile lately. On Thursday, the S&P 500 broke the 50-day moving average on the downside and that can accelerate more selling in the near future. If the index cannot climb back above that average, then it is possible that the index can go down to test the 200-day moving average, which would mean stocks could drop 6% from Thursday’s close.
We are sometimes asked, if the market might decrease, should someone go to cash or to a more conservative portfolio? The answer is no for our clients because they have a well-developed financial plan that is in alignment with their investment portfolio. Our advisors have considered short-term volatility when determining the success of your unique financial plan.
Another thing to note is that the markets could very well move back above the 50-day moving average and continue to push higher. In the short run, markets are unpredictable and sometimes do the opposite of what it is expected to do. Just think about last year, who would have thought at the beginning of the year that, after a worldwide pandemic, where the world was shut down, the S&P 500 would have a strong return?
Rest assure that the Surevest Investment Committee and your financial advisor are working hard to make sure you continue to be on track to meet your personal financial objectives, regardless of what the market does in the short run. We will continue to keep you update through our weekly Market Outlook.