The S&P 500’s rally is showing early signs of fatigue, and technical signals point to a near-term pullback that could offer entry points for patient investors.
According to Jonathan Krinsky, managing director and chief market technician at BTIG, the benchmark index recently breached a critical resistance level, suggesting a 5% decline is likely before finding new support.
Krinsky believes the S&P 500 could fall to roughly 6,100, a level that previously acted as a key ceiling for the index earlier this year. In late January, the S&P 500 met resistance near that point—an area where selling pressure tends to intensify—before external shocks, including tariffs announced by former President Trump, triggered a steep equity sell-off. From its February highs, the index dropped approximately 20% through early April, only regaining momentum in late June when it finally pushed through the 6,100 threshold again.
“Typically, after breaking through resistance, you’ll see a retracement to retest that area as support,” Krinsky told CNBC. “We think that’s coming during the August–September period. Investors should be prepared for an opportunity to re-enter around the 6,100 level.”
For wealth advisors and RIAs, this potential pullback may be less about panic and more about disciplined positioning—particularly if your clients have missed the rally or are underweight equities. Krinsky outlines four core risks that support his short-term cautious stance.
1. Consumer-Focused Stocks Are Showing Strain
Consumer discretionary names, especially those tied to retail and transportation, are lagging the broader market. Year-to-date, the S&P 500’s consumer discretionary sector is down roughly 0.43%, making it one of the few sectors in negative territory. This weakness is notable given the index’s broader gains and reflects pressure from both slowing demand and the impact of higher prices linked to tariffs.
Other strategists have echoed these concerns, highlighting that consumer spending could be vulnerable as inflationary pressures persist. This environment puts discretionary names at risk, particularly those heavily reliant on discretionary household budgets. For advisors, this raises the question: should client exposure lean more toward defensive sectors in the near term, especially for portfolios sensitive to cyclical downturns?
2. Semiconductors Could Lose Momentum
While semiconductors have been a leadership group in the AI-driven rally, history suggests they may underperform relative to software stocks in late summer. Krinsky sees technical vulnerability across many chip names, and recent earnings results back up the concern.
Advanced Micro Devices fell short of consensus earnings estimates, while Super Micro Computer missed on both earnings and revenue. Nvidia’s upcoming earnings later this month will be pivotal; however, even a strong print may not offset seasonal tendencies and broader sector fatigue.
For client portfolios overweight semis, advisors may want to explore trimming positions or rotating part of that exposure into software or other tech subsectors with stronger seasonal or relative performance patterns.
3. Credit Spreads May Begin to Widen
Corporate credit markets have been calm in 2024, with high-yield spreads remaining unusually tight. The ICE BofA US High Yield Index Option-Adjusted Spread recently hovered near 2.95%, close to historic lows. Tight spreads generally signal market confidence, but they also leave little room for error.
Krinsky points to weakening manufacturing employment as a possible catalyst for spread widening. Historically, when manufacturing jobs slow, investors begin to reassess credit risk, often demanding higher yields to hold corporate debt versus Treasurys.
For equity markets, wider credit spreads can be a headwind, especially for cyclical sectors that depend on favorable financing conditions. Advisors with clients heavily exposed to high-beta or leveraged companies may want to evaluate credit market indicators closely as part of their risk management strategy.
4. Mega-Cap Tech May See Profit-Taking
Earnings from Microsoft and Meta were exceptional, with both companies delivering standout results that reinforced their leadership in the AI narrative. However, post-earnings trading patterns tell a different story: despite strong initial gains, there’s been no sustained buying momentum.
“We haven’t seen enthusiasm continue after the prints,” Krinsky noted. “That’s the risk—you get as good as it gets from mega-cap earnings, and then some profit-taking sets in through the back half of summer.”
Given the outsized role mega-cap tech plays in driving index-level performance, even modest selling pressure in this group could amplify downside moves in the S&P 500. Advisors may consider rebalancing concentrated positions, especially for clients who have benefited from the sector’s exceptional run.
Implications for Wealth Advisors and RIAs
For advisors managing client portfolios, Krinsky’s outlook is a reminder that even strong markets can—and often do—pause. Pullbacks are a natural part of market cycles, and for well-prepared investors, they can serve as healthy resets rather than threats.
Here are several considerations for managing through this setup:
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Maintain a Buy List: Have a predetermined set of high-quality names or ETFs ready for deployment if the S&P 500 revisits the 6,100 area. This ensures that client portfolios can take advantage of value without hesitation when volatility strikes.
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Reassess Sector Weightings: Evaluate current exposure to vulnerable areas like consumer discretionary and semiconductors. While not necessarily advocating for wholesale exits, strategic trimming can reduce downside risk while preserving long-term positioning.
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Watch Macro and Credit Indicators: Spreads, manufacturing data, and consumer sentiment are likely to be key signals over the next two months. Incorporating these into portfolio review discussions can help clients understand tactical adjustments.
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Set Client Expectations: Communicate that a 5% market decline is not unusual and can be healthy, particularly after strong gains. Framing pullbacks as opportunities can reduce client anxiety and reinforce discipline.
The Seasonal Context
August and September are historically more volatile months for equities, with average returns tending to be weaker compared to other parts of the year. Thin summer liquidity, coupled with heightened event risk—such as earnings reports, economic data surprises, and policy headlines—often magnifies market moves.
For clients who have enjoyed strong year-to-date gains, now may be an opportune time to review overall risk exposure and rebalance. This could involve locking in some profits from outperformers, shifting toward sectors with more defensive characteristics, or increasing cash allocations in anticipation of redeployment.
Final Thought
The current market environment reflects a blend of technical caution and longer-term optimism. The structural drivers of this bull market—AI adoption, resilient corporate earnings, and still-accommodative liquidity—remain intact. But in the short term, cracks in consumer sectors, semiconductor seasonality, potential credit spread widening, and profit-taking in mega-cap tech could all align to produce a healthy correction.
For wealth advisors and RIAs, the real task is not predicting the exact timing of the pullback, but positioning client portfolios to navigate it effectively. By treating the 6,100 level as a strategic re-entry point, advisors can help clients turn volatility into an advantage—transforming short-term market noise into long-term opportunity.
