Equal-Weighted S&P 500 Signals Trouble Ahead: Analyst
According to BTIG, an equal-weighted version of the S&P 500, known as the SPW, has reached thresholds that historically indicate impending trouble. This index measures the performance of all stocks in the broad index with equal exposure. In contrast, the cap-weighted version, known as the SPX, gives more weight to stocks with larger market caps. BTIG's analysis reveals that the SPW has traded more than 2% below its 200-day moving average, a significant technical level used by traders to assess an asset's long-term momentum. Meanwhile, the SPX is still trading above its 200-day average but has experienced a 2% decline over the past two months.
Historical Precedent and Concerns
Jonathan Krinsky, Chief Market Technician at BTIG, points out that this occurrence has only happened five times in the last three decades, setting an "ominous precedent." The previous instances in August 1998, January 2000, September 2007, October 2018, and March 2020 were followed by meaningful downside movements in the weeks or months that followed. The divergence in performance raises concerns among market participants who worry that a group of megacap stocks, known as the "Magnificent 7," have artificially inflated the market's strength.
Anticipated Challenges and Market Outlook
Krinsky suggests that the S&P 500 could potentially test 4,200 points, representing a 2.8% decline from its Friday close of 4,320.06. He predicts that stocks will face a "new phase" of difficulty in the fourth quarter as higher interest rates exert pressure on the economy. The market technician also expresses concern about stocks closely tied to consumer behavior, such as retailers and restaurants. With winners and losers being sold together, investors are finding it increasingly challenging to identify safe areas of the market.
Analyst Expectations
According to a CNBC survey, the average analyst predicts that the cap-weighted index will finish 2023 at around 4,392, approximately 1.7% higher than Friday's session close for the SPX.
— Contributed by CNBC's Michael Bloom.
Impending Market Trouble: Potential Impact on New Business Formation
The recent analysis by BTIG indicating potential trouble in the S&P 500 could have significant implications for new businesses. The equal-weighted version of the S&P 500, known as the SPW, has hit historical thresholds that typically signal upcoming market turbulence. This development could create a challenging environment for new businesses.
Market Volatility and New Enterprises
Market volatility often presents a high-risk scenario for new businesses. Jonathan Krinsky's warning of an "ominous precedent" suggests that startups may need to brace for potential economic downturns. The predicted "new phase" of difficulty due to higher interest rates could further strain new businesses, particularly those reliant on borrowed capital.
Consumer Behavior and Business Prospects
Krinsky's concern over stocks tied to consumer behavior, such as retailers and restaurants, is particularly relevant for new businesses in these sectors. Market instability could lead to changes in consumer spending habits, affecting the revenue and growth potential of these businesses.
Investment Challenges
The anticipated market turbulence could also impact investment in new businesses. With winners and losers being sold together, investors may find it harder to identify safe investment opportunities, potentially leading to reduced funding for startups.
In light of these potential challenges, new businesses will need to carefully monitor market developments and plan their strategies accordingly. The unfolding situation could shape the business landscape in significant ways.
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