An S&P 500 10% correction is likely this summer, says Piper Sandler

Published Wed, Jun 26 20249:44 AM EDTUpdated Wed, Jun 26 202412:10 PM EDT

It's time to heed the warning signs in markets, according to Piper Sandler. Craig Johnson, the firm's chief market technician, expects the S & P 500 will tumble 10% this summer, saying investors are failing to heed red flags that include poor market breadth and waning momentum. A fall of 10% from Tuesday's close of 5,469.30 would place the broad market index at around 4,920. "When driving a car and an Engine Warning Light pops on, most drivers, at least those older than nineteen, would safely pull over the vehicle and assess the meaning of the Warning Light(s) on the car's dashboard or call an adult," Johnson wrote on Thursday. "Like the car dashboard, equity market warning lights are starting to flash, but most investors can't hear or see them as the F.O.M.O in the markets is cranked up, and investors are just enjoying the ride," he added, referring to a "fear of missing out." "However, the longer these warning lights flash, the more painful the repair bill (market correction) will be," Johnson said. .SPX YTD mountain S & P 500 Stocks have surged this year, largely due to the outperformance of artificial intelligence megacap technology companies such as Nvidia. The S & P 500 and Nasdaq Composite are higher this year by roughly 15% and 18%, respectively. Just last week, the S & P 500 breached 5,500 for the first time. Now, however, investors fear that markets have run too far, too fast, and are in for a far more choppy second half of 2024. Nvidia, which last week briefly became the world's most valuable public company , has now tumbled 10% from its 52-week high. "Based on the market warning lights flashing on our dashboard, we believe the S & P 500 is overdue for maintenance, and a 10% correction back to the rising 200-day MA/lower end of the upward trending price channel off the 2022 lows is likely," Johnson wrote. Johnson anticipates that the S & P 500 will end the year at 5,050, or 7% lower than where it closed Tuesday. The chart watcher said he is raising his cash levels to 20% from 10%, or the model's highest level since mid-2007. He said he's reducing his equity exposure to 80% from 90%, and upgrading industrial stocks to overweight from neutral while downgrading services to neutral from overweight. "We recognize this is a bold call, but based on the weight of the Technical evidence, we believe it's the right call at this time," he wrote.