Pressure on stock prices over the past several sessions is showing a pause in the action early Wednesday in the SPDR S&P 500 ETF (NYSEARCA:SPY). And cautiously, today there is a chance investors can redirect their focus on positive information beyond SPY stock’s persistent bearish macro drivers of late.
A tough five-day stretch this past week for SPY investors has further escalated from common profit-taking to more severe, risk-off market conditions. And it hasn’t been without cause either. March’s aggressive back-half rally took the large-cap, broad-based exchange traded fund (ETF) up nearly 12%. But headlines in recent days have almost uniformly promoted reasons to reduce market exposure amid bearish Covid-19, Russian and inflationary economic data.
The selling is also agreeable if you’re a fundamental SPY investor questioning an overvalued Buffett Indicator, price-to-earnings ratio, or as InvestorPlace’s Will Ashworth notes, you’re respectful of Michael Burry who famously broke the bank during the 2008-2009 financial crisis.
Today, The Big Short investor points at another data point in the S&P 500 that is pushing the limit, a lofty price-to-sales multiple of around 1.9 and almost double its average since the 1990s. But can some of SPY’s inflated valuation worries be dampened?
Earnings season kicks off today and may hold clues as to whether SPY investors are in for further portfolio challenges. A couple key SPY constituents out with earnings this morning are financial giant JPMorgan Chase & Co (NYSE:JPM) and Delta Airlines (NYSE:DAL). Mixed results and profit-taking are pressuring JPM shares by roughly 2.75%. At the same time though, bullish guidance despite higher fuel costs has resulted in DAL stock flying higher by 4.8% for the day.
There is also the market’s technical picture, which could help shift the more bearish sentiment and price action in SPY stock. Wednesday’s modest intraday bump of about 0.35%, is worth monitoring for a bottom. With the S&P 500 down about 7% on the year, shares of SPY stock are now testing the well-watched 50% Fibonacci retracement level from the market’s rally low on Mar. 14.
Also benefiting the possibility of buyers stepping up in SPY, the Chicago Board Options Exchange Volatility Index has traded as high as 25% amid the sell-off. The market’s so-called fear gauge hasn’t hit historically fearful levels of 30%, but there is a strong chance it may not need to as the index has already logged multiple occasions of extreme panic in 2022.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.