U.S. equity markets sharply reversed from early gains into an accelerated sell-off that took the major indexes down around 1.5% or more for the day. The Nasdaq extended its daily losses to five straight days as investors continue to shun the mega-cap technology stocks they embraced throughout the recovery. This has been the longest losing stretch for the Nasdaq since Aug. 2019. Volatility spiked again with the VIX rising 6% on the day. 

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For chart watchers, the S&P 500 has met a wall of resistance (more below). For fundamental investors, equities may feel too risky given the uncertainty ahead, and they may be waiting things out before climbing back in the equities pool. The clock is ticking on the U.S. House Democrats' demand for a new stimulus bill to be signed by the Trump Administration within 48 hours of Sunday, but that likelihood seems remote.

About the only sector that did rally today was U.S. airlines, which have been among the worst performers throughout the pandemic for obvious reasons. It's not like their problems are solved, by any means, but the increase in traveler throughput for the past week is notable.

S&P 500

Meeting Resistance

Even though the market has been slowly grinding higher over the past few weeks, the gains seem to be capped out. Technical analysts call this resistance, which is the opposite of the support we talked about last week.

For the S&P 500, that resistance level seems to be around the 3550 level (chart above). Inside the fundamentals of the market, earnings are bottoming and being revised higher for next year. But stock prices, especially for a handful of companies that have already benefitted from the pandemic, have risen to dizzying heights assuming more torrid growth ahead.

S&P 500 Equity Risk Premium

The Equity Risk Premium Feels Full

In the near term, the obstacles of a lack of a stimulus bill, a resurgence of the virus, and the election are pumping up the volatility. That, according to Morgan Stanley, is making the equity risk premium to own stocks a little full right now. In other words, the risk to own stocks seems too high compared to owning U.S. bonds. We know those yields are really low, but the risk of continuing to buy into the stock market considering the uncertainty ahead may be too much for big investors to bear. 

Translation: Big investors may back out of the stock market for a few weeks until the smoke has cleared.