Market Volatility on the Horizon: Experts Weigh In
As the S&P 500 hovers near its record high, concerns are growing that a stock market correction may be imminent. With the index down just 5% from its December peak, technical indicators suggest a potential downturn could be lurking around the corner.
A Victim of Its Own Success?
Stephen Suttmeier, technical strategist at Bank of America, warns that the S&P 500’s strong performance in 2023 and 2024 may lead to an uninspiring 2025. Historical data shows that the average and median return for the S&P 500 during the third year of a new bull market is a mere 5%, significantly lower than the average annual return of about 10%.
Cracks in the Facade
Adan Turnquist, chief technical strategist at LPL Financial, notes that momentum in stocks has stalled, and deteriorating breadth measures are flashing warning signs for a deeper pullback. Only six of the eleven stock market sectors are trading above their 200-day moving average, down from all eleven in late December. The percentage of S&P 500 stocks above their 200-day moving average has also declined sharply over the past month, from about 76% to 55%.
Expert Insights: How Painful Could a Decline Be?
Business Insider spoke with three equity strategists to gauge the potential impact of a stock market correction. Will Tamplin, senior analyst at Fairlead Strategies, believes the S&P 500’s rising 200-day moving average is a logical level of support to watch. If the index breaks below this level, the next area of support is the 38.2% Fibonacci retracement level at 5,337, representing potential downside of 10% from current levels.
Ross Mayfield, investment strategist at Baird, is bullish on the stock market for 2025 but acknowledges that a correction could be near. Mayfield argues that after a strong two-year rally, a painful decline is overdue, and a downturn of as much as 15% is feasible in 2025.
Sam Stovall, chief investment strategist at CFRA Research, notes that the Santa Claus Rally failed to deliver, which is historically a bad omen for the rest of the year. Stovall believes a key technical Fibonacci level, 5,130, is crucial for investors to watch as support. A decline to this level would represent a peak-to-trough decline of 16%.
The Last Time the Market Experienced a Similar Decline
The last time the S&P 500 experienced a decline of 16% or more was in 2022, during a brutal bear market sparked by surging bond yields. With bond markets recently throwing a tantrum as the 10-year US Treasury yield approaches 5%, investors could once again be worried that the money-losing environment of 2022 could return this year.
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