The market’s message and intentions are always worth debating — especially so during an intense pullback, with cacophonous policy headlines and piqued investor emotions animating the action day to day.
Here’s an assessment of the weight of the evidence, after another rough week — but one that ended in a perky, if apprehensive, rally off a six-month low Friday afternoon, leaving the S&P 500 more than 6% from its record high reached less than three weeks ago — in the form of a bull-bear debate.
The bear case: This tape is guilty until proven innocent.
The Nasdaq ended one of its longer streaks above its 200-day average in recent memory, and history says to expect more near-term downside for a while at least.
The S&P 500 just broke its December low during the first quarter, a classic warning sign from the Stock Trader’s Almanac, which suggests a high chance of significant further weakness before an ultimate low (and likely strong finish to the year) is reached. In fact, the index briefly even cracked its low from the entire fourth quarter, a rare gut check.
Yes, the S&P 500 chopped around the 5700 for most of the week and held it with the late-Friday levitation. But does the market typically give traders four straight days to buy a durable low?
The market could easily continue this tentative bounce here for any reason (or none at all), but the upside is capped well below the record highs.
A slight majority of 5%+ pullbacks end before getting to a full 10% correction. Since 2022, though, it’s been more like a coin toss, according to 3Fourteen Research, which notes here that the best dip-buying backdrop was 2009-2021, when economic-growth scares meant falling bond yields and a lack of inflation meant the Federal Reserve’s safety net was never far below the market.
Whatever the ultimate makeup of trade and immigration policies, they are at least initially more a source of economic friction than fuel, and a drag on growth.
The Treasury market, with two-year yields down from 4.35% to 4% in a few weeks, is on high alert for a slowdown, just as Trump administration officials express an apparent acceptance of a potential “detox” economic slump front-loaded into the first year of its term.
Granted, the retail-investor surveys are reflecting a panicky response to chaotic policy headlines, making it hazardous to get incrementally bearish from here.
But we haven’t seen the kind of headlong fund outflows or aggressive short-selling activity that would suggest the bears are overplaying their hand and that the low is in. Wall Street strategists haven’t yet cut year-end index targets and while sell-side economists are trimming GDP estimates, recession calls haven’t begun.
Sure, the tech giants have come well off the boil and the Nasdaq 100 held tough at the 20,000 level and there’s a scenario in which mega-cap tech starts to act as defensive leadership again at some point. But the Nasdaq 100′s valuation has barely retreated as is far above pre-pandemic norms.
Source: https://www.cnbc.com/2025/03/08/handicapping-the-next-move-for-a-stressed-bull-market.html