March '25 Market Update

The stock market has encountered notable volatility over the past two weeks, despite a robust start to the year. As of February 19, 2025, the S&P 500 had climbed 4.46% year-to-date. However, since that peak, it has retreated 6.6%, leaving it down 2.43% as of March 6, 2025.

If the current market pullback is to escalate into a full correction (i.e. the market down 10% or more), it is likely to unfold relatively swiftly. Historically, 76% of S&P 500 corrections resolve within a 60-day window. So, this one would resolve by mid-April. Approximately half of these corrections conclude in fewer than 40 days (by late March.)

While this decline is relatively modest in historical terms, its rapid onset has intensified concerns among investors. This marks the 30th correction greater than 5% from a high since the March 2009 low, each of which felt catastrophic at the time. Refer to the table below for a detailed list of these pullbacks and their associated causes.

Much of the recent selloff stems from uncertainty surrounding President Trump’s tariff policies and the potential for a global trade war, echoing the market turbulence of 2018. That year, despite overall gains until September, the market dropped 20% amid concerns over Federal Reserve rate hikes and economic growth worries, ultimately closing the year down 6%. In contrast, the current volatility appears driven primarily by trade policy uncertainties rather than monetary tightening.

Anticipating this pullback, we strategically raised cash in portfolios at the beginning of February and again a couple weeks ago. As of March 6, the S&P 500 is testing its 200-day moving average—a critical long-term technical indicator—while the Nasdaq 100 has just breached its own 200-day moving average. The market’s broader bullish trend remains intact for now, but it faces risk if this moving average is decisively broken, retested from below, and rejected. Such a scenario could signal a potential market top, prompting us to further increase cash holdings until a meaningful reversal of the downtrend occurs.

Conversely, if the 200-day moving average holds or a retest proves successful, we plan to redeploy our cash into existing and new investment opportunities.

While additional volatility may lie ahead, I am optimistic that we are nearing—or may have already reached—a bottom in this market downturn, presenting a compelling buying opportunity. Here are seven key reasons supporting this view:

1. Market Volatility: The S&P 500 has experienced six consecutive days of daily price swings exceeding 1%. Since 1950, when such volatility occurs outside bear market territory (defined as a 20% decline), the S&P 500 has risen 100% of the time two to three months later, signaling a potential rebound.

2. Market Sentiment: Current market sentiment ranks as the seventh most bearish on record. Historically, such extreme pessimism has preceded market bottoms within a month, with the S&P 500 advancing 80% of the time and posting a median gain of 4% one month later.

3. Seasonal Trends: Over the past 20 years, stock market seasonality suggests that the second week of March typically marks a turning point, with volatility peaking and the market trending positive.

4. Declining Inflation: Truflation’s real-time U.S. inflation gauge has dropped to 1.42%—the lowest since January 2021. This decline could encourage the Federal Reserve to adopt a more accommodative monetary policy, supporting market recovery.

5. Falling Interest Rates: The 10-year Treasury yield has declined by over 0.5% since the start of 2025, reinforcing expectations that the Fed may lower rates, further easing financial conditions.

6. Robust Earnings Growth: Analysts project S&P 500 earnings to grow by 14.8% in 2025, reflecting strong corporate profitability and underpinning long-term market optimism.

7. Low Recession Risk:

o The U.S. economy remains vibrant, with significant investment opportunities in AI, technology, and infrastructure growth.

o Onshoring initiatives, grid expansion, and potential mid-sized bank mergers could gain momentum under new policy frameworks.

o Despite rising deficits, the U.S. dollar maintains its status as the world’s reserve currency, bolstering economic stability.

o While the sluggish housing market poses a challenge, the U.S. continues to lead globally in innovation and economic strength.

Historical Context on Volatility: Market volatility is a natural and recurring phenomenon. Since 1980, the S&P 500 has experienced an average intra-year decline of 14.1%, yet annual returns have been positive in 34 out of 45 years, averaging nearly 10% in gains. This historical resilience underscores the market’s ability to recover from downturns.

Given the factors outlined above, I am confident that the bull market remains intact, and this current downturn likely represents a strategic buying opportunity for long-term investors. By maintaining discipline and focusing on fundamentals, we can navigate this volatility with confidence and capitalize on emerging opportunities.