In our last article, we pointed out how most financial assets are undergoing a state of decline, especially US stocks that have been experiencing visible indecision. We have also touched on investors’ shrinking appetite for risk, considering the current high stock valuations and that today’s price levels do not reflect market fundamentals overall. 

Nasdaq 100 Breaks Key Support Levels for the First Time in Months

But how do today’s trades differ from last week’s according to the below chart? For starters, the Nasdaq 100 has abandoned its 50-day moving average for the first time in seven months. This also marks the index’s first falling below the important support level of 25,000 for the second consecutive trading session after it had reached as high as 16,000 only at the end of last month.   Finally, the Nasdaq is now trading below the mid-term upward trendline support levels.

Nasdaq 100 Spot - TradingViewNasdaq 100 Spot - TradingView

VIX Index Surges for Fourth Week, Signaling Rising Market Fear

As for the very significant VIX index, which measures how volatile the US market is and how fearful investors are getting, it recorded a 13% spike yesterday, rising for the fourth week in a row. The VIX is currently trading near the 22 level, signaling high risk relating to US stocks, and more so if it reaches above 25.

Volatility of S&P 500 Index - TradingViewVolatility of S&P 500 Index - TradingView

Magnificent 7 Weakness and Macro Risks Raise US Stock Bubble Concerns

The “Magnificent 7” are seven stocks that constitute around 40% of the total US stock market capitalization. Most of the “Magnificent 7” stocks have been recording a weekly decline for three consecutive weeks and a monthly decline all through November, being unable to reach new highs. As for cryptocurrencies, the low risk appetite among investors has shown its face there too, with Bitcoin falling by approximately 30% in the last two months, shedding all gains year-to-date, and breaking the support from an upward trendline dating back to 2022.

Looking through a macroeconomic lens, the US economy has weathered many obstacles in the five years, starting from the COVID-19 crisis up to the Russia-Ukraine war, as well as the latest trade tariff ordeal, among others. If we assume that the current market circumstances are similar to those mentioned, we would be witnessing a mere price correction before the markets take a brief break.

However, if we are indeed witnessing a US stock market bubble, that would be due to economic and political changes that are like nothing the markets have seen in recent times. For example, the possible removal of tariffs by the US Supreme Court as well as the upcoming midterm congressional elections next year and US military tensions related to Venezuela. Most importantly, the end of Fed Chair Jerome Powell’s term next summer and the election of his successor and whether the US government will intervene in it.

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Conclusion:

In conclusion, the US stock market is undoubtedly at a turning point that will determine what’s ahead. Tensions are at a high, and the question remains, why are safe havens like gold and silver falling behind as well? The answer can be found in investors selling all their assets for many reasons, including to cover existing short positions as fear rules the show.