The Daily Breakdown takes a closer look at the S&P 500, which is doing well on a sector-by-sector basis but has been volatile to start 2025.
Wednesday’s TLDR
- The S&P 500 is within 1% of its high
- CVS, LYFT move on earnings
- CPI inflation report in focus
What’s happening?
We’ve seen some crazy headlines so far this year and…we’re only six weeks into 2025. Don’t fret. While some volatility is sure to come our way this year, investors have to keep things in perspective, too.
Remember, since 1974 the S&P 500 has averaged three corrections of 5% or more per year, while the average intra-year correction is about 14%. In other words, pullbacks are normal!
If investors want to keep some dry powder — AKA cash — at the ready for some of these potential pullbacks, there’s nothing wrong with that.
But as we chop up and down through the headline carousel, keep in mind that the S&P 500 remains within 1% of its all-time high, while 10 of its 11 sectors are all higher on the year. In fact, consumer discretionary is the only sector lower on the year, down a measly 0.25%.
Today’s CPI number has the potential to throw a curveball into the mix, particularly if the market reacts poorly to a stronger-than-expected number. But what if the number is good? Let’s look at the technicals 👇
Want to receive these insights straight to your inbox?
The setup — S&P 500
A few things stand out when I look at the chart for the SPY ETF. First, I notice that resistance is pretty well-defined around the $608 to $610 area.
Second, the SPY has been rangebound between $580 and $610 since October. That’s known as consolidation and it speaks to some of the choppy price action we’ve seen so far this year as the S&P bounces up and down within this range.
Lastly, the 100-day moving average has been steadily rising and has acted as support on the pullbacks. If we zoom in, we notice recent buy-the-dip reactions out of the $590 to $595 zone (the blue box on the chart), as well as the series of “lower highs” over the last few weeks (the blue line on the chart).
Okay, so what does all of this mean? The short-term action has been on the choppier side, but the long-term action remains pretty constructive.
Bulls want to see support continue to come out of the $590 to $595 area, as well as from the 100-day moving average. If these measures fail, it could open the door to the lower end of the trading range, potentially putting the $575 to $580 area back in play.
On the upside, investors are looking for an eventual breakout over the $608 level. If the SPY can get above and stay above resistance, it could gain more upside momentum.
Options
Options could be an alternative for investors who want exposure to SPY, but are nervous to get long shares of the stock. Remember the risk for options buyers is tied to the premium paid for the option — and losing the premium is the full risk.
Bulls can utilize calls or call spreads to speculate on further upside, while bears can use puts or put spreads to speculate on SPY moving lower.
For those looking to learn more about options, consider visiting the eToro Academy.
What Wall Street is watching
BABA – Shares of Alibaba are climbing this week, up about 9% and rallying again this morning. The jump is being attributed to AI hopes, and more recently, on reports that Alibaba will team up with Apple to bring AI features to the iPhones it sells in China.
LYFT – Shares of Lyft are hitting the brakes on Wednesday morning, falling more than 10% in pre-market trading. The decline comes after the firm’s disappointing Q4 results. The reaction is weighing on Uber too, which is down slightly this morning, even though the stock has rallied since it reported earnings last week and Bill Ackman’s Pershing Square revealed a large position in the stock.
CVS – Shares of CVS Health are up nearly 10% this morning after the company reported earnings. The firm delivered a top- and bottom-line beat, giving investors a bit of relief as CVS works its way through a turnaround plan.
Disclaimer:
Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.