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

• Bank of America warns of a hard landing if the S&P 500 falls below its 200-day moving average.

• If the stock market falls below that threshold, a 10% correction could occur, BofA said.

• Key sectors such as semiconductors and Big Tech must maintain their support levels to prevent further declines.

Investors can expect a hard landing in the economy if… S&P500 falls below an important technical level, according to a note from Thursday Bank of America strategist Michael Hartnett.

Hartnett highlighted the S&P 500’s 200-day moving average as a key line in the sand that would indicate whether the economy is headed for a bigger downturn.

“Technical levels that would change the Wall St narrative from a soft to a hard landing have not been breached… 4% on 30-year Treasuries, 400 basis points on HY CDX, 5050 on S&P 500,” Hartnett said.

The 5050 level on the S&P 500 corresponds to the rising 200-day moving average of the index. On Friday, the S&P 500 traded at 5,317, which is about 6% above its 200-day moving average.

“Important now for stock leaders SOX (4600) and big tech XLK (200) to hold 200 dma levels… if levels break, traders aim for 2021 highs (i.e. 10% lower),” Hartnett said.

The SOX Semiconductor Index and the XLK ETF tested their 200-day moving average as technical support levels earlier this week. an increase in market volatility before bouncing higher again.

Although key technical support levels have yet to be breached in the stock market, Hartnett is cautious in his outlook for the US economy and stock market.

Before a soft landing can happen, a lot has to go right, including the Federal Reserve cutting rates and lower interest rates leading to a boost in investor sentiment.

But price action in certain parts of the stock market is not encouraging, according to Hartnett.

“Price action in biotech (longest-dated stocks) is yet to have a positive impact on US retail (consumer staples) stocks at a relative 12-year low,” Hartnett said.

Hartnett is sticking to his playbook for selling stocks after the Fed made its first rate cut, which is expected to come at its policy meeting next month.

“We remain in the ‘sell the 1st cut’ camp,” Hartnett said, adding that he sees increasing risks in AI-related stocks as they race to show return on investment of their massive GPU spend.

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