Equity markets held their ground on Tuesday despite renewed signals of economic contraction. The flash reading for both the Services and Manufacturing sector PMIs came in below expectation and with the services sector deep in contractionary territory. The reading of 44 is the fifth month of decline and the lowest reading since May of 2020 at the height of the pandemic lockdowns. The news may be a one-off but is compounded by a trend in data that suggests the economic slowdown that began in Q1 is still present in Q2. The Atlanta Federal Reserve's GDPNow tracking tool is still showing Q3 GDP above 0% but it has taken a noticeable downturn in recent weeks.

With the market in retreat, the economic data weak, and the PCE price index due out on Friday the odds of another major sell-off are high. The S&P 500 is still above the 30-day EMA but not by much and it won't take much to spark the move. Once the index is below 4,115 investors should expect to see downward momentum build and the index fall to 4,000 or lower.