U.S. equities have shown surprising resilience despite recent macroeconomic shocks, but certain areas of the market are beginning to look increasingly fragile, according to BTIG strategist Jonathan Krinsky.
Krinsky pointed out that the S&P 500 has remained relatively stable even as oil prices surged sharply and the latest labor market data disappointed.
“If you told us a week ago that WTI crude was going to go from $67/bbl to $92/bbl and nonfarm payrolls would print -92k vs. 55k consensus, we would have said SPX would be firmly below 6,700. Yet it held up fairly well after two downside tests of 6,700,” he wrote in a Sunday note.
However, Krinsky added that confidence in the index maintaining that support level is fading. A clear move below 6,700 could lead to a test of the 200-day moving average near 6,582, suggesting roughly another 3% downside risk.
Energy markets have also reached extreme levels, which could have broader consequences for equities. “WTI crude at one point on Friday was 45% above its 200 DMA,” Krinsky noted, a condition seen only a few times over the past 40 years, including during the Gulf War and the Russia-Ukraine conflict. In both cases, the rallies proved temporary.
Meanwhile, credit markets are also showing signs of stress. Investment-grade spreads have widened to their weakest levels since last spring, while concerns around private credit are growing — developments that could align with a drop in the S&P 500 if conditions continue to worsen.
Within equities, bank stocks have so far managed to remain above their 200-day moving average. Still, Krinsky said the broader financial sector “is clearly weaker” due to exposure to insurance and private credit activities.
Technology shares present a mixed picture. Software companies have demonstrated relative strength, with the IGV (NYSE:IGV) software ETF gaining more than 7% last week and potentially advancing toward the $95–$100 range.
Semiconductor stocks, on the other hand, appear to be losing momentum after a strong rally. Krinsky expects software names to outperform the semiconductor sector in the months ahead.
Within the semiconductor space, memory chip producers may face the greatest downside risk.
“The memory names in particular look quite vulnerable to us here having made a small top, but with a long way down before meaningful support,” Krinsky said, highlighting SanDisk (NASDAQ:SNDK), Micron Technology (NASDAQ:MU), Western Digital (NASDAQ:WDC) and Seagate (NASDAQ:STX) as stocks that currently appear “precarious.”