Let’s posit the question succinctly: How low will the Standard & Poor’s 500 Index fall?
There’s a related question: How near is the index to a bottom from its highs in mid-February?
The answer to the first question is the index may have bottomed on Monday.
That’s not clear yet, however. Tuesday’s trading will offer a better idea, and it may require a little time for the index bottom to truly reveal itself. Everyone will be watching.
Related: Rare event could send Tesla stock surging
The setup for the answer starts with these elements:
- The S&P 500 had risen 23.3% in 2024.
- The index had climbed 24.2% in 2023.
- When the index hit its all-time closing high of 6,144.15 on Feb. 19, it was up 4.5% for the year.
- It had climbed 36.4% from its October 2023 closing low.
Lastly, since the Feb. 19 peak, the index has been down about 8.7%. However, it bottomed on Monday at 5,565 and bounced up nearly 1% to the close, ending the day down 2.7%.
Two big selloffs when in Trump’s first term
There is a history of selloffs.
Stocks experienced violent reversals twice during the first Trump administration. The first was in 2018 when the administration began what proved to be a months-long trade dispute with China. The U.S. imposed 25% tariffs on billions of dollars of goods imported from China. China retaliated.
The S&P 500 had peaked that year at 2,940 on Sept. 21. Then, President Trump increased the intensity of his rhetoric even further. By Dec. 24, the index was down 20% from the peak. Right after Christmas, a deal between the U.S. and China was struck, and the S&P rallied 3% that week. The index jumped nearly 8% in January 2019.
The second violent upturn came in April 2020 when the index shot up after vaccines to protect against the Covid-19 pandemic became widely available. The S&P had already fallen a third by March 23, 2020. The jump in April was 12.7%, and the rise from bottom to the end of the year was 53%.
Related: Stock Market Today: Stocks plunge as Trump won’t rule out recession risk
Was the market offering signals of turns?
The market does offer signals of when it’s overbought or oversold.
One widely watched signal is the relative strength index (RSI). The index is a measure of how fast a stock changes over time.
An RSI reading below 30 says a stock is oversold. A reading below 20 suggests it’s so low that a rebound is at hand. In 2018, the S&P 500’s RSI bottomed at 19.21 on Christmas Eve.
Likewise, an RSI reading above 70 suggests that an index or stock has been overbought. At 80, a selloff is near.
When Tesla (TSLA) peaked at $488.54 on Dec. 18, 2024, its relative strength index reading was nearly 84. The shares have been selling off ever since. Tesla’s RSI on Monday was 20.59. Maybe a rebound is near.
But RSI can be directionally correct but not offer a perfect sell or buy signal.
The best example comes from the Covid pandemic. The S&P 500 fell roughly 13% from its early 2020 peak until Feb. 28, when it hit 2,954.22. Its RSI at 19 was signaling a bottom was at hand.
But the S&P 500 plunged another 24% until bottoming on March 23.
Recall what happened during those awful Pandemic days when you hear someone say, “A bottom may be near.”
That’s a guess because stuff happens. Here’s what stuff can be:
Delta Air Lines (DAL) late Monday slashed its first-quarter earnings and revenue guidance, citing recently reduced consumer and corporate confidence amid “increased macro uncertainty.”
The airline slashed its first-quarter revenue growth forecast to 3% to 4%, less than half its earlier forecast of 7% to 9%. It also slashed its forecast for adjusted earnings.
Shares fell 5.5% after hours. They were already down 16.85% this year.
More Economic Analysis:
- U.S. consumers are wilting under renewed stagflation risks
- Jobs reports provide critical look at economy, could roil markets
- Fed inflation gauge indicates big changes in key economic driver
What is RSI saying now
Over the last year, the S&P 500’s RSI has flirted with 30 but hadn’t dropped under 30 until Monday. At the close, it was at 29.92. At its low, the RSI was at 28.2. So, yes, the index is signaling it’s oversold. But it is not a big-time signal.
Moreover, the index gained 50 points from the day’s low, which came just after 3 p.m. ET at 5,564.02.
Amazon.com’s (AMZN) RSI was at 27 on Monday, oversold but not like Tesla.
Still, Tesla’s bottom was $220. The shares moved up $2.15 to close at $222.15.
Late Monday’s futures trading suggests the Dow and S&P 500 could open higher. Futures trading on the tech-heavy Nasdaq-100 index still shows weakness.
Related: Veteran fund manager unveils eye-popping S&P 500 forecast
