Widening Credit Spreads in Europe Threaten Stocks at All-Time Highs

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Stocks Analysis by Michael Kramer covering: S&P 500, Dow Jones Industrial Average, US Small Cap 2000, NVIDIA Corporation. Read Michael Kramer's latest article on Investing.com

trading lower and just 185 trading higher. You would never know that from looking at the index that finished the day up by 23 bps, thanks mainly to Broadcom managed to gap higher and rally by around 3%; by the middle of today, all of the gains were gone, and the gap was filled. From a technical standpoint, the index hit its 20-day moving average yesterday, was rejected, and today, it closed below its 50-day moving average.

But credit spreads are widening in places like Europe, with the French-German 10-yr spread reaching its highest level since 2017 now that we have these snap elections taking in France. The spread is currently just 70 bps, which doesn’t sound like much, but these are definitely in the upper end of the range, even if they are well below European debt crisis-like levels.

Right now, all these little things matter because the entire equity market has been built on excess risk-taking, which is what happens when stocks rally purely on multiple expansions and calendar year earnings go sideways for more than 18 months. Such has been the case for 2024 earnings estimates. I noted today that GE broke some major support after it got a downgrade from JPMorgan. Just looking at the chart, there could be some further downside, with the next level of support at $147.Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors.

 

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