STOCK MARKET RECAP MARCH 2025

The stock market made a strong reversal since my last update in February.  Since my last report as of February 14th, the S&P 500 has dropped 7.7%, the Nasdaq has dropped 11.3% and the Russell 2000 has declined by 10.2%.

The chart below shows us how all three indices have performed since the beginning of 2024.  The S&P 500 and the Nasdaq are now both 18% above their levels at the beginning of 2024.  The Russell 2000 (small cap) has given back all the gains it made in 2024 and is now only 1% higher than it was at the beginning of 2024. 

The uncertain tariff situation has been the biggest factor this year.  Economic data is showing signs of softening, but the overall data has remained pretty strong.  The most recent inflation report was encouraging but the market is concerned about future inflation due to tariffs. If tariffs lead to a recession, the stock market will see further declines.  It is difficult to predict what the White House will do at the moment but the administration seems to be committed to tariff increases.

Volatility is higher than normal which we have been expecting. In the last three weeks, the S&P 500 has moved up or down by over 1.2% on average each day.  In the last three weeks, the S&P has had seven days where the index declined by more than 1% and three days where it increased by over 1%. This is a sign of extreme volatility.

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The overvalued stock market situation has changed due to the recent market declines.  Our stock market valuation indicator currently has the S&P 500 overvalued by about 10%.  Last month, the number was 18%.  If corporate profit growth accelerates, valuations will return to more normal levels.  Any bad news about corporate earnings will lead to decreasing stock prices.  Earnings growth expectations for 2025 are above average.

We will continue to ignore our emotions and stick to what our models are telling us.  You, too, should stay disciplined and follow your long-term strategy despite the recent volatility.

Stay Disciplined My Friends,

Phil

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