Trending
The stock market endured a turbulent week, with the S&P 500 slipping into correction territory, down over 10% from its highs, and the Nasdaq tumbling 14% peak to trough. This marks the first significant pullback for the S&P 500 since October 2023. Tech stocks led the decline, reflecting investor concerns over stretched valuations and shifting economic conditions. Meanwhile, the Dow Jones dropped 3.07%. Now all major indexes in negative territory for the year.
Economic data painted a mixed picture with many key indicators pointing to slowing growth. Consumer sentiment dropped for the third consecutive month, with the University of Michigan's index plunging 11% in March amid concerns over inflation and policy uncertainty. Inflation showed signs of cooling, with core CPI rising just 3.1% YoY. This marks its lowest increase since April 2021. Producer prices declined for the first time since July. Treasury yields fell in response, reflecting growing bets on Federal Reserve rate cuts later in the year. Meanwhile, international markets, particularly Europe and China, outperformed U.S. stocks, as investors sought better valuations (and performance) abroad.
Trade policy uncertainty added to market jitters, with the Trump administration announcing new tariffs on key trading partners. Persistent uncertainty around trade policy has corporations holding off on investments and withdrawing guidance, further clouding the outlook. However, historical market patterns suggest pullbacks of 5–15% are common each year, and current conditions don’t point to a prolonged bear market or imminent recession.
What This Means for Investors
Looking ahead, volatility may persist, but historical trends suggest corrections like this are normal. For investors, the message remains clear: diversification is key. It might seem like a drag when the market is ripping, but its a warm security blanket when you need it. Unlike in 2022, when aggressive rate hikes decimated fixed income and there was no where to hide, our current environment rewards diversifiers.
Bonds have outperformed equities this year, offering a hedge against stock market swings, while international stocks have gained ground as investors look for opportunities beyond U.S. mega-cap tech. Defensive and cyclical sectors, such as health care and financials, may continue to outperform as investors seek stability amid uncertainty.
While pullbacks can be unsettling, they also create long-term opportunities. Investors should consider rebalancing portfolios, adding quality investments across asset classes, and staying focused on their long-term strategy rather than reacting to short-term market swings.
Side Note | Keep politics out of your portfolio. If you are contemplating selling over your political or social dissatisfaction with the new administration, you are only hurting yourself. Politics and investing don’t mix.
Market Activity
If you are in a position where you can’t sleep at night, don’t bail out to cash, and definitely don’t short the market. Rebalance and reallocate, but stay invested. If you feel like you are in the sunken place while you watch your portfolio bleed red, then you’ve been taking to much risk. Dial it back and take that lesson to heart.
Intra-year drawdowns of 14% are average. We may go lower from here, but it doesn’t mean the market can’t or won’t recover. We entered 2025 with cumulative 2-yr S&P500 growth of 59% (NASDAQ: +87%). Don’t sweat a little pullback.
Source:
Stocks
Fixed Income
Economic Reports
CPI (headline and core) came in below expectations. Good news is good news, although we remain above Fed targets. There is little chance of a rate cut next week, despite the Trump administration’s best effort to trigger the Fed put. JOLTs was broadly better than expected (good news is good news!), but the report tracks January information which is no longer relevant given the pace of change lately.
This Week
Next Week
Earnings Releases
This Week
Next Week
Recommendations
Eye on the Market
- Fifty Days of Grey | Michael Cembalest is always a must-read / must-watch, especially when the market is in turmoil. [Spotify link]
Plotting the Course
- March Madness | March volatility is common, and post-election years also usually contain above-average volatility. Ryan Detrick of the Carson Group offers explains why short-term losses are just part of the game.
- How to survive a stock market correction | Bankrate covers the basics on how to keep your future self from hating you. Simple, yes, but not easy. Pin these on the wall if you have to.
- When uncertainty becomes unambiguously high | Sam Ro discusses how to mentally and financially navigate our current market environment.
Via Sam Ro / TKer
Dumb Money
- The Squid Game stock market | Some segment of retail investors get swept away during every market swoon. This time it appear to be foreign investors from Korea.
Chart(s) of the Week
Three questions dominate Wall St. and corporate strategy meetings in the US and abroad. Anyone who figures these out or guesses correctly will profit handsomely.
- Will ‘B’ be higher than ‘A’ in real terms?
- What is the duration and depth of the heavy (lower) dotted line?
- How do we minimize the impact of this change while participating in the future upside?
Source: Apollo Chief Economist
FactSet analyzed the mentions of the words “recession” and “tariffs" on Q4 earnings calls between Dec. 15 - Mar. 5. Companies made mention of “tariffs” at the highest level in 10 years, while “recession” showed up the least over the same period.
It will be interesting to see how this changes next quarter, but coming into and during Q1 companies were not concerned at all about a recession. Given the prolific levels of withdrawn guidance (see Sam Ro’s post above), its possible there is now either huge concerns or we’re going to get sandbagging that facilitates a price explosion higher based on revised guidance beats.
Source: FactSet
Source: FactSet
Every so often, I see someone post a graph of US or global M2 money supply growth and scream about inflation, fiat, and armageddon if you don’t go all in on ___ investment. This is nonsense and has no basis in fact. M2 growth is not inflation and has close-to-zero correlation to inflation.
Thanks for reading — Stephen
Related: Recession Watch: GDP Slips and Consumer Spending Stalls