March 25, 2021
SPX: The S&P 500 is consolidating after another period of decelerating price trend momentum. We saw similar activity mid-last month with a peak-to-trough decline of ~4.5%. We don’t expect the current pullback will produce a decline of that ‘magnitude’ with solid support in the 3850-3900 range. The February consolidation was based on higher bond yields, which put pressure on high multiple growth stocks. The S&P 500 is heavily weighted to growth sectors. Bond yields are currently in consolidation mode following the sharp rate back up, which should provide support for growth stocks in coming days. Measuring things out, we expect the index can extend to ~4100 (+5.2% from current levels) sometime in Q2. The same consolidation in bond yields should provide a minor, temporary setback for cyclical/value stocks.
SVX: The S&P 500 Value Index (SVX or ETF symbol IVE) shows no signs of mature top and any pullbacks should be well supported by a series of previous breakouts. We expect to see buying interest in the 1350-1360 range (basically current levels) and more significant buying interest if the index slips to secondary support in the 1295-1320 range. We see the next leg taking the index to a Q2 target of ~1550 (+14% from current levels).
NDX: The Nasdaq 100 (NDX) bounced of support at 12,200 two weeks ago. At the time, we suggest a test of the February high of 13,807 would be possible. The NDX should rally as bond yields consolidate, but the index is currently having trouble given quarter-end pension fund rebalancing. The Tech/growth constituents in the NDX are an easy source of funds for pension fund bond buying. Quarter-end ‘window dressing’ always occurs, but the current cycle is more acute given the sharp recent backup in yields. Bond yields always decline at the end of quarters in which equities have outperformed bonds. And the average PM doesn’t want to justify a Q1 13-F filing with an overweight in Tech. Expect the pressure to come off the NDX at months-end, but the index will have difficulty extending much beyond the February high (+1% from current levels).