this S&P 500 Index The U.S. economy is facing a key test as consensus on a soft landing for the U.S. economy reaches a “make or break” point, one strategist said.
Ron William, chief investment officer at RW Advisory, told CNBC’s “Squawk Box Europe” that the 5,200 mark will “determine whether this rally continues or whether we get a breakout to the downside.”
U.S. stocks rebounded Thursday after falling sharply since Friday. This led to the S&P 500’s strongest trading day since 2022, currently sitting around 5,310.
The two biggest drivers of volatility are Japan’s monetary policy, and uncertainty about the health of the U.S. economy, which has led to doubts about whether the economy will slip into recession — two sets of labor market data that first shocked, then reassured, investors .
S&P 500 Index.
“Strategically, the peak has arrived, but this will likely continue for the remainder of the year and into 2025. This is our base case at RW Advisory,” William said.
“Our view has been a behavioral inflection point since the start of the year, but that has now reversed. But this essentially represents a bull trap squeeze, with a lot of leveraged bullish views on the back of consensus weakness. Landing Horizons, It ultimately determines success or failure.
“Certainly, we can adjust corrections above 10% to 15% or more,” he said, citing 5,200 as a key level to watch.
William describes a bull trap as a selling point in which the bullish consensus turns out to be wrong. Broadly speaking, it can refer to a situation in which an investor suffers a loss on a long position after acting on a buy signal.
“(Bull market traps) can be quite dramatic and that’s certainly what we’ve been looking for in past tactical periods as markets have come under pressure – a triple whammy of extreme momentum, rotational vulnerability and cyclical asymmetry risks,” William said.
When asked about April’s volatility – when the market sold off, rallied, sold off and then continued to rise – William said: “As time has passed, the market has become more overextended in terms of the original three factors. … .excessive momentum, but the fact is, we have continued signs of rotation fragility, and back in the first quarter, tech seemed to be looking even more frothy.
“Then we moved very quickly to value, which was not feasible or sustainable. So in a way, that was the final trigger. After that, we had a perfect storm of other factors that triggered the market to move in the direction of value.” Down.
Correction: This article has been updated with the correct spelling of Ron William’s name.
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