S&P 500 Drop Below Key Level Could Signal Deeper Pullback, LPL Says

The S&P 500's drop below a closely watched technical threshold could signal a deeper pullback ahead, research from LPL Financial showed Tuesday, underscoring growing pressure on equities as tech and AI trades unwind globally.

The benchmark index closed below its 50-day moving average on Monday for the first time since April, ending its longest such streak since 2007 and the sixth-longest in the past 75 years, according to LPL.

"It shows that this isn't just a one day move down, this is more sustained. Sentiment had just gotten very complacent," said Marta Norton, chief investment strategist at retirement and wealth services provider Empower.

Other short-term indicators have also turned more negative. More defensive sectors are beginning to lead the market for the first time in seven months.

Market breadth is deteriorating, with only 51% of S&P 500 constituents trading above their 200-day moving averages, LPL noted.

The commentary illustrates the severity of the recent sell-off, which has come during a month that is usually favorable for stocks.

"The hype is extreme and the money is cheap. The risk of a popping bubble is growing with each new eye-popping deal and each sign of market fatigue," Tuttle Capital Management CEO Matthew Tuttle said.

NVIDIA EYED AFTER BUBBLE CONCERNS

Investors are hoping for a blowout quarterly report from Nvidia Wednesday to lift the gloom hanging over equities, but the company's stock is trading 12% below its record high.

Several business leaders and analysts have warned that markets may be vulnerable to a correction, arguing that the AI boom has driven valuations to unjustifiable levels.

Moving averages track the market's average level over a set period, smoothing out day-to-day swings. When an index falls below a widely watched moving average such as the 50-day, many investors see it as a sign that momentum is fading.

Such technical signals can help investors judge the depth of pullbacks and offer another frame of reference as they navigate market swings.

However, LPL said resilient earnings, expected interest rate cuts by the U.S. Federal Reserve and President Donald Trump's "One Big Beautiful Act" keep the long-term view on equities constructive.

"There is real value and wealth that will be generated. Of course, there's always a little bit of a high from investments, but that is needed for innovation to happen," AI data firm MinIO co-CEO Garima Kapoor said.