Top US stock market indices like the S&P 500, Nasdaq 100, and Dow Jones suffered a harsh reversal on Thursday and Friday, erasing billions of dollars in value. The S&P 500 Index retreated by 3% from its year-to-date high, while the Dow Jones and Nasdaq 100 fell by 1.35% and 6%, respectively.
Top Analyst Gives Reasons For the S&P 500, Nasdaq 100, and Dow Jones Crash
A top market analyst has given the top reasons why the stock market crashed in the final two days of the week. In an X post, The Kobeissi Letter blamed the sell-off to a combination of factors.
He pointed to the strong macro numbers released this week, which pushed the odds of Fed hikes upwards. A report released on Friday showed that the US nonfarm payrolls rose by 172k in May, higher than the expected 85k.
Two days before that, another report by ADP showed that the private sector added 122k jobs during the month. Job vacancies jumped by over 700k in April despite the Iran war.
Therefore, with the US inflation report remaining above the 2% target for years, there are signs that the Fed will hike interest rates this year. This explains why US bond yields also jumped after the NFP report.
The analyst also pointed to the recent announcement by Alphabet (NASDAQ:GOOG), which is selling shares worth over $80 billion to fund its AI ambitions. According to the FT, Meta Platforms (NASDAQ:META) is also raising billions of dollars. These share sales dilute their investors, and more big tech companies may do the same.
He also pointed to the upcoming $75 billion SpaceX IPO. His theory is that some investors are selling their shares to take advantage of the IPO.
Meanwhile, there are concerns that the AI growth may start to decelerate. A case in point is the recent Broadcom (NASDAQ:AVGO), which triggered a wave of selling across the tech sector.
Technicals Showed That the US Stock Market Was Overbought
Meanwhile, technicals suggest that the US stock market was due for a correction. Data shows that the S&P 500 Index became highly overbought as the recent bull market accelerated. The Relative Strength Index (RSI) jumped to the extreme overbought level of 78. Similarly, the RSI of the Nasdaq 100 and Dow Jones moved to their extreme levels.
S&P 500 Index chart | Source: TradingView
In the S&P 500 Index's case, there is a risk that it may drop further from the current $7,383 to $7,000. This is possible as the price was along the highest point in January this year. As such, moving to that level will be a break-and-retest pattern, which normally happens ahead of a reversal.
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