Dow Jones
The S&P 500 index is off by more than 1% as investors reflect on a slew of information and corporate earnings from the United States. The decline ends an impressive rally that has been going on this month as investors focus shifted to recovery. Still, the index has gained by more than 15%. Here are the main reasons why the S&P 500 index is declining
The first reason why the S&P 500 index is falling is because of the jobless situation in the US. Data released today by the Labour Department showed that more than 3.8 million Americans filed for unemployment benefits in the previous week.
This brings the total number of Americans who have lost their jobs in the past six weeks to more than 30 million. In contrast, the economy added about 25 million jobs since the last financial crisis until February. On a positive note, the weekly numbers are falling after peaking in March at 6.8 million.
The second reason why the S&P dropped today was that experts are still cautious about remdesivr, the wonder drug that Gilead Sciences is pushing. In a statement yesterday, the company said that the drug had worked well in another trial by a team of infectious disease experts.
However, according to Axios, many experts were worried about the drug. The report said that while the drug was promising, it did not appear to cure the disease. Also, there were concerns because the drug appeared to work well in early stages of the illness. In another report, Umer Raffat, an expert at Evercore ISI said:
“This near-constant back-and-forth over remdesivir reinforces how strong the science and data need to be for any treatment, or for the world’s best hope: a vaccine.”
The S&P 500 also declined because of the mixed corporate earnings. Starting from yesterday evening, we received tens of important earnings from companies like Google, Twitter, Comcast, Dunkin Brands, and Tapestry among others. While Google, Tesla, Microsoft, ServiceNow, Qualcomm, and Twitter did well, companies like McDonalds, Tapestry, and Align technology disappointed. Therefore, investors are likely worried about other earnings that will come later today.
Download our Q2 Market Global Market Outlook
On the daily chart, the S&P 500 is a few points below its close yesterday. This price is slightly below the 61.8% Fibonacci retracement level. The price is also above the 25-day and 50-day exponential moving averages. Still, amid this decline, the index is still in a strong upward trend and I expect that bulls will continue to push it higher as they attempt to test the 78.2% retracement level at $3,156. But, to achieve this, they need to move above the yesterday’s high of $2944.
On the flipside, a move below $2,800 will invalidate this thesis. This price is important because of its psychological relevance and that it is along the 50% Fib level and along the 50-day EMA.