By Joseph Adinolfi
The ‘Magnificent Seven’ are breaking down, defensive consumer staples are on a tear – and then there’s the midterm-election curse
Investors have a few reasons to be nervous, even with the S&P 500 still just a short distance from record territory.
After another wild week for the stock market, we imagine investors will welcome a three-day holiday break.
The S&P 500 SPX managed to eke out a gain on Friday but still ended a tough week lower. The Nasdaq Composite COMP wasn’t so lucky, falling for a fourth straight day to cap off a fifth straight week in the red – the longest weekly losing streak since 2022. The tech-heavy index hasn’t seen a record high since late October.
Of course, after a strong run, a rally taking a bit of a pause is understandable, several market strategists told MarketWatch.
Still, the wild swings and big selloffs in areas from software to freight and logistics have left some on edge. The fact that more value-oriented and defensive sectors like consumer staples have raced ahead isn’t helping. The Cboe Volatility Index VIX, or the VIX, also known as Wall Street’s “fear gauge,” finished Friday above 20, indicating a heightened level of alert in the options market.
“The huge swings go well beyond mere rotation and could certainly indicate something less benign and more troubling,” said Steve Sosnick, chief strategist at Interactive Brokers.
“I’ve used the term ‘stock market Jenga’ before. You can only knock so many pieces out of the market’s foundation before it topples.”
S&P 500 struggles to break above 7,000
The first chart is just tracking the S&P 500’s price. As of Friday’s close, the index was off 0.8% from its late-October high. Technical strategists are waiting for the index to notch back-to-back closes above 7,000.
That would signal that the index might finally be ready to start moving higher again after months of going sideways, as MarketWatch reported last week.
Until that happens, bulls and bears have plenty of room for differing interpretations, said Michael Lebowitz, a portfolio manager at RIA Advisors.
“The chart clearly looks like it’s in a consolidation process,” Lebowitz said. “If you want to be bearish, you can say it’s in a topping pattern. You can make a bullish or bearish case without drawing any trendlines.”
“But some consolidation after the rally we have had since April is certainly normal,” he added.
‘Magnificent Seven’ ETF breaks below 40-week average
The “Magnificent Seven” have gone from magnificent to lag-nificent.
For anybody following the market, big pullbacks in shares of Amazon.com (AMZN), Apple (AAPL) and Microsoft (MSFT) have been hard to ignore. Although plenty of other stocks have been rising in their stead, members of this elite cohort are so big, and exert such a strong influence over the direction of the S&P 500, that it is difficult to imagine major indexes like the S&P moving higher from here without at least a little help from Big Tech.
On Friday, the Roundhill Magnificent Seven ETF MAGS finished just above its 200-day moving average. The 200-day moving average is seen as an important threshold. It represents the long-term trendline for a given asset, ETF or index. Sometimes, a break below can signal more pain ahead, while a successful bounce can signal that the selling has become overdone.
Plenty of stocks in the information-technology sector, and adjacent areas like communication services and consumer discretionary – home to Amazon and Tesla (TSLA) – have struggled in 2026.
While the 200-day often serves as a reliable support level, some technical analysts think the ETF could break below it this time.
“The 200-day moving average is a potential support zone, especially because it’s so widely followed that it can become self-fulfilling,” said Will Tamplin, a strategist at Fairlead Strategies.
“As a result, it would be natural to see buyers step back in and drive a near-term rebound in MAGS.” Yet Tamplin’s team still expects the ETF ultimately to break below the 200-day before eventually finding support around $55 a share. The ETF closed at $61.15 on Friday, FactSet data showed.
Consumer staples are on a tear
Another trend that is making some investors nervous: that defensive sectors like consumer staples have been on a tear lately.
On a rolling five-week basis, the consumer-staples sector has risen 17%. Going back to 1990, there have only been four other instances in which the sector has seen stronger performance: April 2020, April 2000, November 1998 and February 1991.
“We have been seeing a defensive posture with utilities, healthcare and staples stocks catching bids,” said Jose Torres, senior economist at Interactive Brokers.
Earnings reports are causing huge swings
The latest quarterly earnings season isn’t over yet, and investors are still waiting on reports from heavy hitters Nvidia (NVDA) and Broadcom (AVGO).
But the volatility has been pretty extreme, as the chart below from a team of analysts at Citi Securities shows. As of the middle of last week, 15 S&P 500 companies had seen swings of 15% or greater after reporting earnings. That is the highest proportion going back to at least 2012.
Torres at Interactive Brokers said the widening dispersion within the S&P 500, with different stocks and sectors increasingly trading in different directions, could be cause for concern.
“AI was lifting all boats” he told MarketWatch. “Now it’s only carrying a few.”
More stocks are climbing, but the S&P 500 isn’t
The U.S. stock market’s dependence on a handful of Big Tech stocks is being tested in 2026.
One of the most obvious signs of this is the advance-decline line hitting a record high on Wednesday, said Lebowitz at RIA. On Friday, the S&P 500 finished more than 2% below the record close of 6,978.60 hit on Jan. 27, Dow Jones Market Data showed.
“The complexion is changing. It’s reason to be more on guard, pay attention, start to figure out how you might reduce risk,” Lebowitz added.
The midterm curse
Out of the entire four-year presidential cycle, midterm years have historically seen the weakest returns for all three major U.S. equity indexes.
The last two in particular have been tough for stocks. The S&P 500 finished both 2018 and 2022 in the red. So did the Nasdaq, as well as the Dow Jones Industrial Average.
“There’s always the midterm curse,” said Interactive Brokers’ Torres.
Mike DeStefano, Ken Jimenez and Chelsea Ng contributed.
-Joseph Adinolfi
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02-15-26 1200ET
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