03/24/2025 Market Strategy
Beware of Darkness Redux
Volatility Persists as Uncertainty Remains Stateside and Internationally as Numerous Unknown Outcomes Jostle Market Sentiment Around the World
Key Takeaways
- This week, traders and investors will likely ponder their next moves based on news flow and economic data.
- As expected, the Fed made no change to its benchmark rate last week with Jerome Powell’s remarks suggesting continued sensitivity by the Fed to meet its dual mandate.
- Recent bearishness exhibited in the market reminds us of 2022.
- The S&P500 forward earnings multiple ended the week at 20.5x the next 12 months earnings estimate—just above its 5-year average forward multiple.
Recent market conditions have brought out the bears from their caves in droves along with market skeptics and nervous investors. Midst the present period of downdrafts we can’t help recalling the negativity projected in 2022 that captured market participants’, observers’, and commentators’ attention until stocks were pushed into a bear market. Then, as “the smoke” cleared the fray, it was realized in the fall of that year that the negative outcomes projected at the time were apparently not to be realized. False evidence appearing real simply didn’t produce the dire outcome that had been powerfully projected. No recession surfaced, no surge in unemployment, and S&P 500 earnings seasons delivered earnings surprises beyond just a few sectors.
We did not ascribe to the negative pitch book then nor do we now.
The result back then? A market that began to rally from a low in October of 2022 forward, onward, and upward through the next two years (not without being tested along the way) with stocks achieving record highs on back of record highs supported by the Federal Reserve’s monetary policy, economic resilience, persistent job growth, earnings season surprises, and AI (the most recent chapter of the series of watershed periods that have come forth from developments in the realm of technology).
Where are we now?
In our view, it’s a “here we are again” period in which the negative pitch book meets head on with the fundamentals. Time might well tell sooner than later this year (but still perhaps not as soon as most would like) with the outcome to surface from the current negative period of turbulence as cooler heads prevail freeing the market from its current sour disposition.
The fear and greed theme currently held by some bears, skeptics, and nervous investors that has seen the S&P 500 tumble as much as 10.1% on fears tied to domestic and geopolitical policies could prove overly negative in hindsight considering the recent and current fundamentals of the US economy.
In our view, stateside economic conditions and corporate earnings as reflected in Q4 earnings season which ended last week point to resilience strong enough to weather the current levels of uncertainty driven by concerns tied to tariff policy, reduction of the size of government, as well as other concerns about Fed monetary policy which rank high among a laundry list of items with outcomes unknown at present.
As we have said in previous editions of this publication the current environment presents opportunities for traders to benefit in markets prone to bounce between losses and gains in the short term. For investors the current volatility presents opportunities to seek out “babies that get thrown out with the bath water” in market downdrafts.
Markets so far this year since the middle of February have shown a proclivity to churn as worry turns into trades to offset the effects of traders and hedge fund positioning, then unwinding of positions, and next repositioning in the short term.
In our view, bears have found catalysts in negative interpretations of economic data, company specific earnings results and guidance to take profits without FOMO (fear of missing out) in what may once again be thought of in hindsight as a secular (long-term) bull market supported by innovation that could well benefit companies in all eleven sectors and likely across market capitalizations and style once the proverbial smoke clears.
As of last Friday, the S&P 500 stood some 7.8% off from its record high of 6,114.15. Last week saw several relief rallies midst the downdraft that the equity market has experienced since the S&P 500 hit a peak on February 19 of this year. With four of the last six trading sessions (from March 17 through last Friday March 21) finding the S&P 500 closing higher than it did in the prior day we’d have to think a reconsideration of what has taken place in the pull back from the S&P 500 could soon gain some traction.
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