Bank of America says the stock market will signal a hard landing for the economy if it falls below this key level

• Bank of America warned of a sharp decline if the S&P 500 falls below its 200-day moving average.

• If the stock market falls below that threshold, there could be a 10% correction, Bank of America said.

• Key sectors like semiconductors and big tech companies should maintain their support levels to avoid further declines.

Investors can expect a sharp decline in the economy if Standard & Poor’s 500 It fell below a key technical level, according to a note on Thursday from Bank of America Strategist Michael Hartnett.

Hartnett highlighted the 200-day moving average of the S&P 500 as a key line that would indicate whether the economy is headed for a bigger slowdown.

“The technical levels that would flip the Wall Street narrative from soft to hard haven’t been broken… 4% on the 30-year Treasury, 400 basis points on the HY CDX, and 5050 on the S&P 500,” Hartnett said.

The 5,050 level on the S&P 500 is in line with its rising 200-day moving average. As of Friday, the S&P 500 was trading at 5,317, or nearly 6% above its 200-day moving average.

“It is now important for the SOX (4600) and large tech (XLK) stock leaders to hold their 200-day moving average levels… If the levels are broken, traders will then target the 2021 highs (i.e. 10% decline),” Hartnett said.

The SOX Semiconductor Index and the XLK ETF tested their 200-day moving average as technical support levels earlier this week during Increase in market volatility before it rises again.

While key technical support levels in the stock market have not been breached yet, Hartnett is cautious in his outlook for the US economy and stock market.

For a soft landing to happen, a lot of things have to go right, including the Fed cutting interest rates, and then the rate cut boosting investor sentiment.

But price movements in certain areas of the stock market are not encouraging, according to Hartnett.

“Price action in biotech (longest-held stock) is not good and US retail stocks have yet to rally (consumer discretionary is at a 12-year relative low),” Hartnett said.

Hartnett is sticking to his plan to sell shares after the Federal Reserve delivers its first rate cut, which is expected to happen at its policy meeting next month.

“We are still in the first-share sale camp,” Hartnett said, adding that he sees increased risk in AI-related stocks as oil prices fall. The race to show ROI From their massive spending on GPUs.

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