U.S. fell again this week but we had another late week rally that erased some of the losses. This also happened on the past two Fridays. However, in both cases, stocks fell hard on Monday and erased Friday’s big rally and then some a few days later. Will it happen again on Monday? Only time will tell. Earlier today we had disappointing consumer sentiment data which normally is bearish, but instead of falling, stocks rallied. Typically, it’s a good thing to see the market rally on bearish news. Let’s take a look at the major events that happened this week.
Correction Territory:
Normally, a pullback is defined as a decline of 1-10% below a 52-week high. A correction is defined as a decline of 10-20% and a bear market is anything that is over 20%. The benchmark S&P 500 officially hit correction territory on Thursday, falling 10% from its 52-week high. However, Friday’s big rally put it back in pullback mode as it is now 8% below its 52-week high. However, the Nasdaq 100 (QQQ) is in correction territory and is 11% below its 52-week high. The smaller and mid cap indices are also in correction territory. The small-cap Russell 2000 and mid-cap S&P 400 are both down 17% and 14%, respectively. That means most of the market is in a correction and the small cap stocks are very close to hitting the -20% bear market threshold.
Super Oversold
Just about any technical or sentiment level you look at will show you that this market is super oversold and way overdue to bounce. Near term, the bulls want to see the major indices rally and get back above their respective 200 day moving average lines. Meanwhile, the bears want to see the market roll over and have another leg down.
Exaggerated Moves:
It is important to note that in downtrend (present market included) we tend to see exaggerated moves both up and down. Right now the market is in a downtrend and we can easily see big wild swings both up and down.
Week In Review:
The week began with a thud. On Monday, stocks tanked their lowest levels in six months, driven by relentless tariff news from President Donald Trump and growing fears of an economic slowdown. Investors dumped stocks as fear spread that we are heading into a recession. The sell-off erased more than $4 trillion from the S&P 500’s market value since its February peak.
Stocks fell again on Tuesday after Trump doubled down on his tariff rhetoric. However, later in the day, U.S. and Canadian officials signaled plans to de-escalate tensions through talks scheduled for this week.
Stocks rallied nicely on Wednesday after a cooler-than-expected consumer inflation report for February showed inflation was slowing. That didn’t last long because sellers showed upon Thursday and undercut Wednesday’s low erasing a chance for a new rally to unfold. The selling came after Trump said there might be new duties that will take effect on April 2. Stocks bounced sharply on Friday after consumer sentiment fell to its lowest levels in years.
Gold, Silver, & China, & International Stocks:
In other news, I am seeing the big money flow into international equities and gold/silver. China’s stock market is acting very well and so are many Chinese stocks. Other international equity markets are acting well as the US stock market pullsback.
Gold hit a new record high and topped $3,000 an ounce, reflecting a flight to safety that has intensified as US stocks fall.
After two years of robust gains fueled by AI optimism and a resilient U.S. economy, Wall Street is now contending with a starkly different landscape. Trump’s tariffs, coupled with softer corporate earnings outlooks from many retail stocks, like Wal-Mart, Kohl’s Corp., Dollar General Corp., etc has caused investors to worry about a weaker consumer.
Even some analysts on Wall Street are cutting their growth estimates for the broader economy. Goldman Sachs analysts slashed their 2025 GDP forecast to 1.7% from 2.4%, citing “the tax-like effect of rising tariffs, elevated uncertainty, and tightening financial conditions.” Morgan Stanley’s team went even lower, projecting 1.5% growth.
What’s Next: The Fed, Earnings, and More Tariff Talk
As investors look forward, the focus shifts to a few catalysts that could either stabilize markets or deepen the decline: The Federal Reserve’s next moves, a fresh batch of economic data, Russia Ukraine Peace talks, and the ongoing trade war.
The Fed has its next meeting next week. The Fed’s two day meeting will finish on Wednesday with a rate decision and updated economic projections expected after the meeting. Markets are pricing in a quarter-point cut to the benchmark rate, currently at 4.25%-4.5%, following softer labor market data and this week’s tame inflation print. Barclays expects two cuts in 2025, though some economists now see the Fed starting as early as June if tariff-driven uncertainty persists.
Investors will be laser-focused on Chair Jerome Powell’s press conference for clues about how the central bank views the trade war’s economic toll. “The Fed is in a tough spot,” said Hooper. “They can’t ignore the tariff noise, but they also don’t want to overreact to what’s still a hypothetical risk.”
Economic data will also take center stage. Tuesday’s retail sales report for February will offer a window into consumer health. That’s going to be important because many people are worried about the health of the consumer. In fact, the XRT which is a popular ETF that tracks retail stocks is in a private bear market and has been falling hard recently. Investors will also want to know if the ongoing tariff headlines are squeezing household budgets. Any upside surprises could bolster hopes of a soft landing; downside misses might reignite recession fears. In other news, investors will be looking for the latest developments from the Russia Ukraine war, the Trade War, and any other headline that hits the wires. The first quarter is almost over and then we have the April 2 deadline right around the corner.
For now, Wall Street is in wait-and-see mode. Friday’s rally shows resilience, but there is still a lot of technical damage that needs to be repaired. One thing is for sure, it’s never a dull moment on Wall Street.