Published March 14, 2025
This week marked a clear turning point for the stock market. The chart below shows the S&P 500 breaking below its longer-term 200-day (40-week) moving average.
For more context, this longer-term trendline had held for two years as the Nasdaq 100 (QQQ) chart below shows. The small arrows point to how this trendline often acts as support or resistance to market price moves. We would now expect this line to roll downward and provide resistance to market rally efforts.
For a broader view, the QQQ peaked on February 18. Since that day, the index has fallen -14% in almost a straight line down, one of the sharpest downdrafts seen. The chart shows that the prior three down markets have seen a decline around 25-35% for the Nasdaq.
Small cap stocks have been the weakest of the indexes, peaking in a one-day burst after the November election. It’s been down and down ever since, so much so that the small cap index is already nearing possible support. Were that to fail, we could see the index drop almost -35% (in total) before the next major support comes into play. We note that small and mid-cap stock indexes are already down seven consecutive weeks. They are due for something of a rest in the selling. When will it come?
Obviously, stocks don’t have to adhere to these lines on a chart. However, they do provide some visual guidelines for where the market is, some history, and possible landing spots for the decline.
Significant damage has been done to the market over the past month. At a minimum, we would expect stocks to chop around as investors digest what they perceive is a notable change in economic outlook. We would also expect rallies from here to be short-lived and capped by those long-term trendlines, as they have been in prior market corrections.
Market Update
Stocks plunged -4% Monday as fears of a possible recession dialed up caution among investors. An increase in tariffs on Canadian metals put stocks on the defensive Tuesday morning. However, by day’s end, the tariff talk had eased a bit with stocks cutting their loss to -1%. Some relief Wednesday when a report on consumer inflation came in a touch lighter than forecast. Stocks recovered +0.5%. But they resumed falling Thursday on more tariff threats, this time focused on Europe, and a cool response from Russia on a possible ceasefire in Ukraine. The S&P 500 slid another -1%. An apparent agreement to avoid a government shutdown gave investors good news Friday to help stocks mount a recovery trade. Stocks popped +2% to claw back some of the damage from earlier in the week.
Stock indexes tried to find a bottom late in the week though the S&P 500 (SPY) still closed the week down -2.28%. The Nasdaq 100 (QQQ) lopped off another -2.47%. Small cap stocks (IWM) outperformed with a slightly better -1.49% slide for the week.
Warm wishes and until next week.