Market Insights Recap — Week of March 17, 2025
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Hello, I'm Steve Orr, Chief Investment Officer at Texas Capital's Private Bank. After a month of sliding stocks, D.C. whiplash and a growth scare, where are we? At the risk of being a broken record, stocks are enjoying an overvaluation correction.
Tariffs are back in fashion, and economic data is a bit softer. Stocks have yet to bottom in this correction. Looking at the percent drop in the S&P 500, just over 10%, a little more in Nasdaq, it's a pretty typical correction. The median correction is a drop of around 11%. So we're in the ballpark for washing out and bottoming. Now the speed of the move down is more impressive. That 10% drop is over 17 trading sessions, and it is the seventh fastest drop since 1929. President Trump owns three of the seven: in 2018, 2020 and this one.
Last Thursday marked a sixth straight day of daily 1% gains or losses in the S&P 500. A run of six days with that much up and down, volatility, is pretty rare. These rare bouts of volatility usually need weeks of healing to settle down. But six and 12 months after a set of six up and down days, median returns are twice the historical average. There are several other historical points that at this point tell us this is a garden variety correction for stocks. First, regular readers of our columns remember that this is year three of a bull cycle. When the first two years are up more than 20%, year three struggles with one or more corrections, finally finishing up the year positive. Second, bull cycles that reach the age of two generally make it to age five. Of all the eight post-World War II bulls lasting five years, all ran into turbulence and had a correction in month five of year three. Our current bull started in October of 2022. And here we are in month five of year three. Right on time. If this bull follows prior cycles, we're in for a few more bumpy weeks before price action settles down.
Corrections are driven by price, time or both. This last month, the major stock indices have corrected in price. The best time corrections occur when stocks just grind sideways for months or even years. Most corrections involve both, a price drop followed by grinding sideways, or brief rallies as the market rebuilds internal strength, and we vote for time corrections. Next week, we'll cover how valuation, trend and sentiment are triggered into a correction. But possibly the bulk of this correction is behind us.
So what to do with portfolios? Tech and the Magnificent Seven have been the main drivers of this cycle. But if other countries begin spending more freely and their companies' earnings increase, there's going to be some opportunities abroad in the coming months. We agree with our indicators keeping us overweight and larger company stocks and out of small stocks. That correction trigger I mentioned earlier can be blamed on tariff uncertainty, D.C. drama and a mixed bag of economic stats. D.C. drama fell a bit on Friday as it looks like we avoided a government shutdown, so we can all get back to tariff trauma.
Job growth and openings have held steady over the last six months. Next month's job numbers, though, are based on surveys conducted last week. So we expect weaker numbers from government layoffs. This week, Fed meeting on Wednesday, no change in rates, but the committee issues its quarterly economic and rate outlook. Retail and existing home sales, industrial production, all should be about flat month over month.
Friday marks the end of quarter trading for futures and options, so expect some bouncing around at expiration. Given the 4 to 15% drop this year in most stock indices, there's going to be some rebalance buying toward the end of the month by big pension plans.
So in summary, a speedy but normal stock correction that fits both time and valuation metrics triggered by tariff trauma. Tariff uncertainty is still with us. And corrections do not bottom until there's some bad news. Now we have no idea what bad news that might be, but it may involve the Cowboys. A more likely scenario would be a weak jobs report April 4th. Short-term rates are on hold. Long-term rates are stuck in a range. Patience is the order of the day; 'til next time.