S&P 500 Stalls at Trendline Resistance as Sentiment Sours. Where Next for Stocks?

S&P 500 OUTLOOK:

• S&P 500 falls as sentiment sours following disappointing U.S. economic data
• A labor market report showed that job openings in February fell to their lowest level since May 2021, a sign that hiring is starting to slow down meaningfully
• From a technical perspective, losses could accelerate if the equity index fails to clear trendline resistance at 4,140 in short order

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The S&P 500 retreated on Tuesday and dropped 0.58% to 4,100, ending a four-session winning streak, with the industrial and material sectors leading losses on Wall Street, as weaker-than-expected U.S. economic data dampened appetite for risky assets.

Earlier in the day, the JOLTS report showed that job openings sank below 10 million in February for the first time in nearly two years, clocking in at 9.93 million, well below expectations of 10.5 million, a sign that the labor market is starting to deteriorate rapidly as hiring conditions tighten.

ECONOMIC CALENDAR

Source:DailyFX Economic Calendar

While a weak labor market may force the Fed to embrace a more dovish position once inflationary pressures ease further, it could also induce households to curtail spending significantly, leading to an economic contraction over the medium term.

Corporate earnings will suffer dramatically if the U.S. economy enters a recession, but the overall impact will ultimately depend on the magnitude and severity of any downturn. In any case, the increased likelihood of a recession poses a significant risk to the S&P 500 that should not be dismissed.

We will know more about the outlook in the coming weeks when the first-quarter earnings season gets underway. To better prepare for what lies ahead, traders should closely track financial reports and, more importantly, company guidance, a key variable for forward-looking investors.

From a technical perspective, the S&P 500 has failed to clear trendline resistance at 4,140 and has begun taper off, indicating that bullish impetus may be vanishing. From here, if the index begins to pull back intently, initial support rests at 4,040, followed by 4,000, a major psychological level.

On the flip side, if bulls regain decisive control of the market and manage to push the S&P 500 above 4,140, buying interest could pick up momentum, setting the stage for a move towards the 4,200 level. On further strength, the focus shifts to 4,315, the 61.8% Fib retracement of the 2022 slump.

S&P 500 TECHNICAL CHART

S&P 500 Chart Prepared Using TradingView