As investors return from Memorial Day weekend, they face a historically tough market setup for June, which has seen the S&P 500 average a loss of 2.1% during midterm election years, while the Dow Jones and Nasdaq have each declined by 1.9%.
The S&P 500's recent rally, which saw it climb approximately 19% since late March, is showing signs of fatigue, with fewer stocks participating and momentum stalling. Jeff Hirsch, editor in chief at the Stock Trader's Almanac, noted that a sell signal was triggered on May 18, marking the end of a strong six-month period for the Dow and S&P 500.
He identifies 7,150 as a critical support level for the S&P 500, suggesting a potential decline of 4% to 5% from current levels, with a possibility of a deeper correction to 6,600 or 6,700, representing a 10% to 12% drop. Additionally, macroeconomic risks, including inflation driven by geopolitical tensions, are contributing to a cautious outlook.
Despite these challenges, Hirsch anticipates that any near-term volatility could set the stage for a rally later in the year, projecting an overall increase of 8% to 12% by year-end compared to 2025's close