The market’s signals and intentions are always open to interpretation — particularly during a significant market pullback, when diverse policy news and heightened investor emotions drive daily fluctuations. Here’s a look at the current evidence, following another challenging week — one that concluded with a slightly optimistic, albeit cautious, rebound from a six-month low on Friday afternoon, leaving the S & P 500 more than 6% below its record high reached just a few weeks ago — framed as a bull-bear discussion. The bear perspective: This market is suspect until proven reliable. The Nasdaq experienced one of its longer durations above its 200-day average in recent memory, and history suggests we should brace for further short-term declines at least for a while. The S & P 500 recently fell below its December low during the first quarter, a classic alert from the Stock Trader’s Almanac, indicating a strong likelihood of additional significant declines before reaching an ultimate low (and potentially a robust end to the year). In fact, the index dipped below its low from the entirety of the fourth quarter, marking a rare and sobering reality check. While the S & P 500 fluctuated around the 5700 mark for much of the week, holding steady due to a late rally on Friday, it raises the question: does the market typically offer traders four consecutive days to purchase a lasting low? The market could very well continue this uncertain bounce for any reason (or even no reason), yet the upside remains heavily constrained well beneath the record peaks. Historically, a small majority of 5%+ pullbacks conclude before they escalate to a full 10% correction. However, since 2022, it has felt more like a toss-up, as noted by 3Fourteen Research, which emphasizes that the best conditions for buying dips occurred from 2009 to 2021, when fears of economic downturn led to declining bond yields and minimal inflation, putting the Federal Reserve’s safety net just below the market. Regardless of the eventual configuration of trade and immigration policies, they currently act more as a source of economic tension rather than a catalyst, detracting from growth. The Treasury market, with two-year yields dropping from 4.35% to 4% within a few weeks, is on high alert for an economic slowdown, coinciding with indications from Trump administration officials that they may be bracing for a potential “detox” economic slump, front-loaded into the initial year of their term. While retail-investor sentiment shows a panicked reaction to erratic policy headlines, making it risky to lean more bearish, we haven’t witnessed the sort of significant fund withdrawals or aggressive short-selling activity that would imply the bears have overstepped and that the lows are finalized. Wall Street strategists haven’t yet adjusted year-end index projections, and while sell-side economists are lowering GDP forecasts, recession predictions have yet to emerge. The tech giants have indeed cooled down considerably, and the Nasdaq 100 has shown resilience at the 20,000 mark, leaving room for the possibility of mega-cap tech emerging as defensive leadership once again. However, the Nasdaq 100’s valuation has barely seen a drop and remains significantly higher than pre-pandemic levels. Investors eager to engage in cyclical advances can now find opportunities worldwide. Germany’s decision to lift government borrowing limits and invest substantially in infrastructure and defense marked a historic release of previously untapped fiscal potential and growth enthusiasm. Consequently, the German 10-year government bond yield surged from 2.66% to 3.09% in a week, while the Euro climbed from $1.05 to above $1.08, and the German DAX increased by 15% year to date. Meanwhile, China is also stimulating growth, leading to a robust rebound in its stock market. If this shift symbolizes a rebalancing of consumption habits and fiscal relations globally after years of excessive reliance on U.S. consumption, it is a encouraging sign. However, swift fluctuations in currencies and global bond yields can lead to instability and heightened risk premiums. The panic from the early August 2024 “yen carry trade” serves as a recent example, occurring after a two-week decline in the U.S. equity market that resembles the current situation. The bull perspective: The market has undergone a legitimate reset. The S & P experienced a decline of over 7% from peak to trough over 12 trading days, returning to the mid-July high — almost precisely — before rebounding by 1.8% from the midday low on Friday into the weekend. .SPX 1Y mountain S & P 500, 1-year Yes, the index dipped below its 200-day moving average, but that trend line still shows a solid upward slope. The market reached a level of oversold pressure by the end of the week, making a reasonable bounce plausible, alleviating some immediate strain, and overall, it remained relatively orderly. Investor sentiment has become markedly anxious, as revealed by retail and professional investor surveys. The Fear & Greed Index, which aggregates several market indicators instead of opinions, indicated growing anxiety by Thursday, setting up a potentially favorable contrarian context. A solid argument can be made that the chaotic sell-off leading into the middle of last week represented a peak in tariff hostility, coinciding with the recent visible economic growth concerns. The S & P 500 has spent the past four days testing the 5700 level repeatedly, and thus far, has held firm against the stress, as bulls show some resilience even amid another potentially turbulent news weekend. The charts showcasing spikes in the Economic Policy Uncertainty Index and the frequency of “tariff” mentions during corporate conference calls have become commonplace recently. One cannot dismiss the prevailing sense of widespread indecision, given the unclear policy messages. Yet historically, such heightened levels of perceived uncertainty often correlate with better buying opportunities rather than selling. It’s important to remember that along with the inconsistent tariff news and fluctuations in consumer spending, the recent market turmoil was ignited by a significant downturn in previously popular momentum stocks across every sector. While the market reacted sharply to headlines regarding the somewhat incoherent tariff strategies last week, the stocks that placed the most downward pressure on the S & P 500 included former momentum leaders like Nvidia, Amazon, Meta, Tesla, and JPMorgan. This momentum sector has experienced a legitimate correction, and JP Morgan quantitative strategists highlighted on Friday that fund allocations to this group have reverted from historical extremes toward more normalized levels. This investment style isn’t necessarily washed out just yet but should pose less risk of unpredictable liquidation in the future. Admittedly, the year began with consensus expectations running high, with valuations peaking post-pandemic and retail investors engaging in exuberant risk-taking. The market has addressed these conditions by deflating many of the prevailing assumptions surrounding 2025: U.S. exceptionalism, bearish sentiment on bonds, and the belief in a seamless expansion of the market. Stocks have underperformed despite a generally positive earnings season, partly due to uninspiring corporate guidance, resulting in a decline in expected S & P 500 profit growth from 11.6% to 7.3%, according to FactSet. However, if forecasts stabilize around 7% and consider typical margin or estimate-beating behaviors by companies, that remains supportive growth. Aggregate consumer incomes continue to rise, February’s job growth was acceptable, and a slow start to retail sales this winter indicates a potential for greater spending in upcoming months. Sure, the decline in Treasury yields reflects concerns of a slowdown, but it also supports rate-sensitive economic sectors such as housing. It’s uncertain whether a solid trading bottom has been reached. Any rebound will likely be viewed with skepticism, given the substantial obstacles visible on the charts. Nonetheless, when prices decline and valuations decrease, stocks often become less risky for long-term investors instead of more so. Currently, the median S & P 500 stock is 15% away from its peak. The equal-weighted S & P 500 has returned to its 10-year average forward P/E ratio. Quality stocks have shown slight declines, while more speculative stocks have faced larger setbacks. Alphabet is now trading at its largest-ever discount compared to the broader market. A volatile start to a post-election year was anticipated, with pullbacks being entirely normal, and it remains a bull market until proven otherwise. Doesn’t it?
