The American stock market is in retreat - or maybe it's just a correction? Outlook for the S&P 500 and Nasdaq

Last week could have brought a lot of worries to investors, as stock indices seemed to be falling relentlessly. Futures on the SPX index fell by over 2,5%, continuing the decline from the previous week, when quotations fell by almost 2,5%. Looking more broadly, from the July peak to last week's trough, contract prices for... SPX index they fell by over 11%, which officially means a correction in the index.

Futures contracts on Nasdaq xnumx in turn, they fell from the July peak by almost 12%, which also confirmed the index correction at a time when the yields of 10-year bonds are still around 5%. The rapid cooling in price also appears to be helping to cool heated multiples, especially technology stocks. Added to this is the US GDP reading for the third quarter, which was exceptionally high and is likely to be unsustainable going forward. The growth rate of the US economy may therefore slow down.

Potential SPX ranges in one and three months

Taking into account the variability resulting from VIX index it can be translated into the expected volatility for SPX over e.g. 1 month and 3 months, as potential time horizons. In the case of a bullish scenario, i.e. the current decline is just a correction, the market could rise towards the October peak at 4393 points within a month. In turn, within three months from now, a test of the July peaks, i.e. 4582 points, would be possible.

However, if a bearish scenario develops, the volatility measure could indicate a potential descent of the SPX to the March low of 3861 points within a month, and within three months from today, a drop to the low of October 2022, i.e. 3698 points, would be possible.

SPX seasonality

Many people are also beginning to point out that this year, seasonality on American indices is working exceptionally well and, according to this approach, the correction should be ending. In terms of seasonality, November and December were good months for the stock market, pushing their prices higher. However, a decline in US bond yields would be useful here, which would probably allow the above seasonal pattern to be implemented. The positive news may be that American bonds also statistically became more expensive than they fell in November.

Key macro data

The behavior of indices and bonds may also be influenced by upcoming macroeconomic events. On November 1, we will learn the Fed's decision on interest rates, and on November 3, data from the US labor market will be released. A lot may also depend on them which scenario will be implemented on the markets.