By: Nexa Financial Group
The wild ride for the U.S. stock market continues in 2026. Following a two-month pullback in February and March amid geopolitical tensions in the Middle East, the S&P 500 skyrocketed beyond all comprehension in April and May. In the process, the U.S. stock market went from being deeply oversold to vastly overbought. By the start of June, the market had become so ridiculously ahead of itself that basically someone needed to sneeze on the floor of the New York Stock Exchange (or the Bureau of Labor Statistics needed to release a better than expected jobs report last week) and stocks would pullback. And since last Friday, the S&P 500 has already shed over -5% peak to trough. Now that the overdue pullback is underway, when and where should we expect the bounce.
It’s important to note that the underlying market fundamentals justify an eventual bounce. Forecasts for economic growth remain strong, the 5-year breakeven inflation rate has descended back below 2.5%, and corporate earnings are projected to grow at a double-digit rate over the next year. So while these conditions may eventually break as soon as later this year, they continue to hold enough to justify stocks finding their footing and making a renewed push to the upside in the short-term.
Referring to the above chart, we can see the logical thresholds where the S&P 500 is likely to bounce. The first is at its 50-day moving average (blue curvy line), which is currently at 7215 and rising. Thus, we could see a bounce on the S&P 500 in the coming days at levels ranging between 7250 and 7300 as this support line continues to ascend. If this support breaks, the next level would be the upward sloping trendline dating back to last October (blue straight line). This level served as resistance for the market from late October through mid-April before the resounding early spring break out the upside. What was once resistance has now become support, and it is more than reasonable to expect that stocks would bounce at this trendline currently just over 7100 and gradually rising. Now, if things start to become more calamitous, the next major support level would be at the S&P 500’s 200-day moving average (red line), currently at 6872 and also steadily rising. But even if stocks pulled all the way back to this level, they would still not have entered full-fledged correction territory at down -10% from previous peaks. This is how strong the current market remains despite the recent bout of weakness.
Looking deeper beneath the surface, it is also important to note the internal dynamics currently playing out in the market. For just as the market gains in April and May were highly concentrated in a single industry (semiconductors) in a single sector (technology), so too have the subsequent losses since June 3. Where the S&P 500 has fallen by -5% peak to trough, the information technology sector has dropped by nearly -13% peak to trough over the same time period.
These concentrated losses are obscuring all that is continuing to steadily chug along to the upside within the current stock market. This includes the consumer staples, health care, financials, and real estate sectors, each of which are higher by +4%, +6%, +2%, and +4%, respectively, since June 3.
Bottom line. The U.S. stock market as measured by the S&P 500 was long overdue for some sort of pullback as the month of June got underway, so the recent decline comes as no surprise. Even though the headline index is pulling back, it is important to dissect the recent decline for context. For while technology stocks are taking the brunt of the pullback in recent days, many other sectors within the market are continuing to perform well. And just as we were overdue for a pullback heading into the month, we are now approaching levels where we are setting up for a fundamentally supported bounce.
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #1123626.
