The S&P 500 index is one of the largest indexes in the world. Its companies have a market cap of more than $23 trillion. To put this into perspective, the US has a GDP of more than $18 trillion. It is also a higher GDP of hundreds of companies combined. Unlike the Dow Jones Industrial Average (DJIA), the S&P is more representative of the US economy because of the number of companies in it.
In 2017, the S&P 500 had one of the best years in history. The index rose by more than 20% making it one of the best performing index in the world. This year however, the index has had a challenging period as a result of the ongoing rhetoric on trade. It has gained by less than 3%.
Today, the index has reached $2722, which is lower than the all-time high of $2875. The declines this week are associated with the ongoing crisis on trade. This crisis is likely to continue in the near term which will lead to more challenges for the economy. A good example is the problem with Harley-Davidson, one of America’s most storied companies. This week, the company announced that it would move to manufacturing abroad to avoid the tariffs which will affect its margins. More companies will likely follow this trend.
As shown below, the index is currently forming an inverted cup and handle pattern. The index is also trading below the short and medium term moving averages and trading above the 200-day moving average as shown below. As the ongoing trade crisis roils over, the index could make more lows. As such, markets may take any pullback as an opportunity to sell. For the contrarian however, there is also a merit of “buying the dip” with hopes that the trade impasse will be solved.