Jeremy Siegel, Professor of Finance remarks on “Closing Bell” came near the end of a volatile session on Wall Street, in which the Dow Jones Industrial Average fell 725.81 points, or 2.09 percent, and the broad S&P500 fell 1.59 percent. The Nasdaq, which is heavily weighted toward technology, fell 1.06 percent.
Stocks hurt by a hiccup in the pandemic recovery, such as airlines, were among the biggest losers on Monday. Investors are weighing the implications of an increase in new infections linked to the highly transmissible delta variant for global economic growth.
“I continue to believe that the bull market is not over. “We might have a few more percent to go [to the downside],” Siegel speculated. However, he stated that the Federal Reserve’s monetary policy remains highly accommodative, even if the central bank decides to reduce asset purchases in the coming months.
“I don’t think tapering is off the table because I think the inflation news will be bad in the next two to three months,” Siegel said. “However, with all that money out there, all that support back there… I think the push there is favorable for equities.” The possibility of additional fiscal spending by the end of the year, whether through the bipartisan infrastructure package or another piece of legislation, is also encouraging, he added.
“I don’t think we’re at the start of another bear market or even a correction, which of course would be a 10% drop in the [S&P500],” Siegel, a longtime bull who wrote the bestselling investing book “Stocks for the Long Run,” said.
The delta variant in the United States is critical to understanding Siegel’s outlook on Monday’s sell-off and potential market risks.
Despite the fact that the country is seeing an increase in coronavirus cases, Siegel believes the market will begin to look past it because investors will come to view this increase in infections as the last major one of the pandemic in America. He acknowledged that the international outlook is less optimistic, particularly in developing countries where vaccine availability is a challenge.
It may take a month or two for the latest rise in U.S. Covid cases to level off, according to Siegel, but the stock market will not wait that long to bet on a better situation.
“Of course, when it comes to everyday life, I believe Covid changed everything in terms of the workplace and a variety of other things. However, in terms of being able to carry out the activities, I believe the market is forward-thinking and will see it through relatively soon,” Siegel said.
The S&P 500 plunged
The S&P 500 plunged below a crucial technical mark on Monday, but then finished above it, offering investors some optimism of a changeover.
As stocks fell sharply during the session, the S&P500 fell below 4,240, its 50-day moving average. It then reclaimed its previous high late in the trading day, closing at 4,258. The S&P500 fell below the 50-day moving average for the first time since June 21, a technical level that is literally the closing average of the previous 50 sessions.
“I think right now a lot of people are expecting a turnaround Tuesday,” said Instinet executive director Frank Cappelleri. The 50-day period can serve as a level of support.
Since the market bottomed in March 2020, the 50-day moving average has acted as a magnet, attracting buyers, according to Cappelleri. “It has been a support line that traders have kept an eye on whenever there has been a dip this year. If it aggressively breaks that, I am concerned that the selling momentum will continue.”
Cappelleri added that the test of the 50-day moving average will most likely take several days. “I think it would be a little presumptuous to think this was it, touching it one day and going back to new highs,” he said. “We have a lot more work to do before we get confirmation.”
T3Live.com partner Scott Redler said he is also keeping an eye on the 50-day, and it will take several days of trading to see how it resolves. “The longer we linger around the 50-day without bouncing off it with any force, the more likely we are in a longer corrective phase.”
Some growth names, such as the iShares Biotechnology ETF and the ARK Innovation ETF, were able to close higher on Monday, according to strategists.
Fairlead Strategies founder Katie Stockton said she did not see market breakdowns that would indicate a prolonged sell-off, but she did sense some investor panic.
She believes the market could be higher by the end of the week. She, on the other hand, is watching the performance of the Russell 2000. The small cap index fell 1.5 percent to 2,130, but is still up 9.7 percent from its high.
“If the Russell were to fall apart, we would be more cautious on the S&P500,” she explained. She is keeping an eye on the level between 2,066 and 2,081 as an area of concern for the Russell 2000. “What we don’t want to see are a few decisive closes below that.”
Cappelleri is also keeping an eye on Russell.
“Some of the small cap names have had issues in recent weeks. Many of them were severely injured. Before the market opened, the percentage of Russell 2000 stocks above their 20-day moving average was around 16%. As a result, it is even lower now,” he explained. “We haven’t seen anything less than 10% since before the March 2020 crash. This demonstrates how depressed the names became.”