Why the S&P 500 will drop 5% in the coming weeks, technical analyst says

US stocks are facing an overdue drawdown that could come in a matter of weeks, BTIG’s Jonathan Krinsky said.

In an interview with CNBC, the firm’s chief market technician predicted that the S&P 500 will slump 5% either heading into the presidential election, or in the days after.

“In the coming weeks, you’re going to get that shakeout,” he said.

Krinsky cited volatile moves in the dollar (to its strongest level since July) and Treasury bonds (10-year Treasury above 4.2%) as core catalysts for an impending pullback. The stock market has been placid by comparison, but Krinsky doesn’t expect that to last.

According to Krinsky, such moves in the currency and bond markets have historically preceded significant pullbacks in the S&P 500. Similar volatility in the fall of 2022 and 2023 caused the index to drop 19% and 11%, he cited.

“It just seems like the equity volatility isn’t really matching the macro at this point,” Krinsky noted. As of Friday, the S&P continues to churn higher.

Krinsky also said the upcoming election could serve as a “sell the news” event for investors, as the stock market has been unusually strong during September and October, a period that normally sees seasonal weakness.

“I think this year the market is in some ways pre-trading,” the market technician said, noting that investors appear to be betting around rising sentiment that Donald Trump will win. “And so I think the set-up is a little different here.”

This means that weakness is likely ahead, whoever the next president is: “If he wins, I think it’s been pre-traded. And if Harris wins, there could be some disappointment there, given what the market’s pricing in right now.”