Breadth, Profitability, China, and Greece All Add Up

The S&P 500 has lost critical technical support at the 200-day moving average and the 2,000 level — putting its post-2011 uptrend in jeopardy. Many observers pooh-poohed the importance of the technical “death cross” last week. Turns out to have been meaningful indeed, as it was a milepost by which to observe the stark loss of market momentum.

There may be no single driver for the decline, but a number of factors have combined in the context of what had been quiet calm in the U.S. stock market:

— There’s been a multi-month decline in market breadth, as fewer and fewer U.S. stocks participated to the upside. We have chronicled this.

— Corporate profitability has been pressured by slowdowns overseas, the stronger dollar, a tightening job market, and lower energy prices. We’ve also noted this.

— China has seen a marked slowdown in its economic data, has suffered a 32% stock market decline, and conducted a surprise devaluation of its currency last week.

— Greece is back in the news as Prime Minister Alexis Tsipras has stepped down ahead of snap elections.

— Tensions are rising on the Korean peninsula after North and South Korea exchanged artillery fire.

Besides China, the acceleration of last week’s decline seems to have been driven by concerns surrounding the approach of a potential Federal Reserve interest rate hike on Sept. 17.

We’re in the midst of “hike havoc” — not unlike the “taper tantrum” of early 2013 as former Fed Chairman Ben Bernanke considered the beginning of the end of the QE3 bond purchase stimulus program.

Will the Fed ignore building financial market turmoil or be pressured into waiting?

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