S&P 500: Temporary correction due to rising bond yields?

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The U.S. stock market, especially the S&P 500, has experienced a recent correction due to rising 10-year Treasury yields, which have reached their highest level since July. While this increase has put pressure on stocks, some analysts believe the impact could be temporary.

The S&P 500(Ticker AT:USA500), which has shown positive performance in 2024, continues to be driven by a strong economy and solid corporate results. Despite the recent downturn, there is optimism about the market's upside potential, especially in cyclical sectors such as financials and industrials. The expectation is that economic growth and corporate earnings will continue to support the index, despite concerns about higher bond yields.

The rise in yields reflects the strength of the U.S. economy, which has raised concerns among some investors, but does not appear to be enough of an obstacle to slow the market's long-term rally. In recent years, the market has shown resilience in the face of high yields, suggesting that this correction may only be a temporary adjustment.

Sectors with upside potential based on the context of recent market movements:
1. Technology:
o Technology companies such as Apple, Microsoft, and Nvidia remain key, especially with the growth of artificial intelligence, semiconductors, and demand for cloud software and services.
2. Energy:
o With the rise of renewable energy and the global energy transition, companies like ExxonMobil (in the traditional sector) and NextEra Energy (in clean energy) may have upside potential in this environment.
3. Healthcare:
o Biotech and pharmaceutical companies such as Pfizer and Johnson & Johnson maintain an attractive profile thanks to innovation in medical treatments and the stability of the sector.
4. Financials:
o Banks and insurers tend to benefit from rising Treasury yields, with companies like JPMorgan Chase or Bank of America being in a good position to take advantage of a strong economic environment.
5. Industrials:
o With global infrastructure improving and demand picking up, companies like Caterpillar and Honeywell have room for growth.
6. Real Estate:
o Despite interest rate sensitivity, companies like Prologis (logistics real estate) are well positioned for an environment of expanding logistics needs, driven by e-commerce.


Looking at the S&P500 chart, it is currently located in the upper zone of the channel at 5,827.90 points near the historical high of 5,886.35 points. The initial support zone of the current impulse is located at 5,151.97 points, with other support zones above that position the last support at 5,636.80 points. The price bell control point (POC) is located precisely in this zone. It would not be unusual to see the index looking for 6,000 points and executing a healthy price correction in the direction of the indicated control point. If this price were to be pierced to the downside, the next control zone would be located at 5,398.75 points. At the moment, it appears that bonds seem to be exerting more pressure than expected, the strong economy could keep the index in this bullish directionality.

In summary, although the rise in Treasury yields has impacted the S&P 500, the uptrend is expected to continue, driven by a favorable economic environment and solid corporate earnings.
Ion Jauregui - ActivTrades Analyst




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