Technical Analysis: The shifting winds of risk

There’s mounting concern over the US economy, and recent headlines aren’t helping. How do you manage investments as uncertainties blow winds of risk?

US consumer spending is on a decline as economic growth is seen to slow, the trade spat escalates, and the job market is uncertain.

Once again, financial-market players shifted expectations from a strong US growth and high inflation environment to one that’s “deflationary.”

Stocks and the new US administration

The lack of consistent and reliable messaging from the US new administration triggered a sharp 10% correction in the S&P 500 as sentiment soured.

SPDR Growth vs Value ETF

Source: Bloomberg & Metrobank Trust Banking Group

The graph above depicts the weekly relative performance of SPDR Growth ETF versus SPDR Value ETF. A rising line indicates growth outperformance and value underperformance. Over the past month, growth has underperformed, declining toward the support level (green line).

While the uptrend in price (top panel) remains intact, the momentum indicators (lower two panels) suggest a weakening trend, signaling a potential de-risking phase for growth stocks.

Typically, growth stocks are associated with high capital spending implying higher risks and returns. Meanwhile, value stocks are those likened to stability and consistency of cashflows.

 S&P500 enters correction

Source: Bloomberg

The S&P 500, which has a significant allocation to growth stocks, fell below the 5,850 uptrend (blue line) that began in October 2023. This break in the trend suggests a strategic shift from a “buy and hold” approach to a more mean-reverting strategy—”buy low, sell high.”

In the near term, the recent sell-off appears overdone and is likely due for a bounce. However, given the risks to growth, reducing exposure to the S&P 500 — as it rallies toward key resistance levels — appears to be a more prudent approach.

The key resistance levels are:

1. 5,750 – The 200-day moving average (orange line), a critical threshold between risk-on and risk-off sentiment.

2. 5,850 – The 50% retracement level, marking the mid-point in the golden ratio.

3. 5,950 – A retest of the broken uptrend (blue line), which would confirm the trend break.

Reducing near-term risk helps limit exposure to price shocks, which are extreme market movements driven by panic and fear amid heightened uncertainty.

 Don’t waste a correction

Source: Bloomberg

Following the S&P 500’s back-to-back 20% gains in 2023 and 2024, this year is expected to be more volatile. Watching daily price movements is stressful. So, when in doubt, zoom out.

From a longer-term perspective, the uptrend since the pandemic lows remains intact, with strong support in the 5,000 range. A drop to the 5,000 level could present a potential buying opportunity for the S&P 500, assuming there is no US recession, black swan event, or major external shock.

Managing uncertainty

During volatile periods, cash-accumulating funds like the Metro$ Money Market Fund and Metro$ Short Term Bond Fund offer protection and liquidity. Meanwhile, high-yielding funds offer diversification, allowing investors to stay flexible and capitalize on market shifts.

Keeping emotions in check and adapting to risks will help compound returns over time by properly navigating market cycles. Read more about limiting irrational investing here.

Take-away

• Value stocks may outperform growth stocks in the second or third quarter amid uncertainties.
• Tactically reducing risk at key resistance levels helps mitigate exposure to price shocks.
• Price shocks often feel like the end of the world—this is when the last sellers capitulate, forming a market bottom.
• The S&P 500 has long-term support at 5,000, a key level to watch.
• Adapting to changing risk regimes minimizes downside while maximizing upside capture over time.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses. UITFs are governed by BSP regulations but are not deposit products, hence are not covered by the PDIC. Being an investment product, there is no guaranty on the principal and income of the investments.)  

KYLE TAN, MSFE, CFTe is a Portfolio Manager at Metrobank’s Trust Banking Group, managing the bank’s global Unit Investment Trust Funds (UITF). He holds a Master’s degree in Financial Engineering from the De La Salle University, a Certified Financial Technician (CFTe), a PSE Certified Securities Specialist (CSS), and has completed the requirements for the Chartered Market Technician (CMT) designation, pending charter awarding. He spends his free time working out, training at the gun range, or hunting for rare Star Wars collectibles.