MW Here's what recent history says happens after the S&P 500 breaches this critical level

By Jamie Chisholm

Stocks look oversold but don't bet on a V-shaped recovery this time, says this strategist

The Trump-tariff hokey pokey has not been good for investors' nerves. The last six sessions have seen the S&P 500 SPX register an average move of 1.5%, with four chunky losses and two big gains.

And that doesn't fully reflect the intraday wobbles. Little wonder the CBOE VIX index VIX, a gauge of expected S&P 500 vacillation, is elevated at around 25.

But, as Petyr "Littlefinger" Baelish from Game of Thrones says : "Chaos is a ladder."

That's the message we can infer from Cameron Dawson, chief investment officer at NewEdge Wealth, who in a presentation with colleagues Brian Nick and Jay Peters says, "volatility creates opportunity."

But why are stocks currently under such pressure? Dawson says the problem is the market came into the year with great expectations. Valuations and investor positioning had become "stretched" as earnings forecasts were trimmed but shares still moved higher.

Economic expansion estimates were upbeat and are now being cut amid policy uncertainty, as the Trump administration for now is focused on restructuring rather than growth, with little concern about the market's negative response. Seasonal factors aren't helping either - late February and March tend to be tricky times for stocks.

"The bar was so high you had zero room to absorb any kind of downside shock," says Dawson.

Now, though, the market is slightly oversold so we could see a short-term bounce, she says. Unfortunately, she's not convinced stocks will enjoy the kind of V-shaped recovery traders have become used to over many years. That's because some technical factors aren't looking great.

The S&P 500's moving average convergence divergence (MACD), which measures how far and fast the index is moving relative to its moving averages, shows "we have been losing momentum for much of the past year." And that means the index may not have the heft to break back above the 6,000 level anytime soon. A relapse would mean the next support is around the 5,400 to 5,500 level, Dawson suggests.

And if the S&P 500 does roll over, then it's likely to drop below its 200-day moving average - which it currently sits just above. That's the kind of negative signal that makes those of a technical bent, and likely a fair few algorithms, to press harder on the sell button.

But that's the time traders should remember Littlefinger, because as the table below shows, buying stocks once they have corrected and are trading below their 200-day moving average increases forward returns.

The market has broken below its 200-day moving average 15 times since the global financial crisis. The average 1-year return has been 17% if investors bought the S&P 500 on the day of the breach. Only once in the past 15 breaches has the 1-year return been negative. On a three-year horizon, the average return is 58%, or 16% per year.

Cameron and colleagues believe that in the present environment investors should be "looking beyond the S&P 500 and Mag 7" and putting any new funds to work in "quality" small and mid-cap stocks. Make sure you have enough bonds, they say, and utilize options to exploit heightened volatility while maintaining a portfolio. Finally, and perhaps easier said than done, investors should "avoid assets/asset classes driven primarily by speculation."

In conclusion Dawson says: "We continue to see volatility as opportunity. Our view for 2025 is that it's less important where we end the year, more important what we do with the volatility along the way."

Markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are slightly higher as benchmark Treasury yields BX:TMUBMUSD10Y dip. The dollar index DXY is lower, while oil prices (CL.1) rise and gold (GC00) is trading around $2,928 an ounce.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              5738.52    -2.10%  -5.67%  -2.43%  11.27% 
   Nasdaq Composite                                                     18,069.26  -2.56%  -8.70%  -6.43%  11.04% 
   10-year Treasury                                                     4.273      11.40   -22.50  -30.30  17.10 
   Gold                                                                 2925.1     2.02%   1.34%   10.83%  33.80% 
   Oil                                                                  67.18      -3.96%  -5.46%  -6.53%  -13.69% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

The U.S. nonfarm payrolls report for February will be released at 8:30 a.m. Eastern. Economists expect a net 170,000 jobs were created, up from 143,000 in January. The unemployment rate is forecast to stay at 4.0% and hourly wages to rise by 0.3%, compared to 0.5% in January.

Federal Reserve Chair Jerome Powell will speak about the economic outlook at 12:30 p.m., with other Fed officials also due to make comments.

Broadcom shares $(AVGO)$ are jumping after the software and semiconductor company delivered well-received earnings and guidance. But Hewlett Packard Enterprise's stock $(HPE)$ is plunging on expectations the server company will be hurt by tariffs.

Shares of Gap $(GAP)$ are surging after the clothing retailer revealed a strong holiday-quarter.

The price of bitcoin (BTCUSD) hovered around $88,000 after President Donald Trump signed an executive order to establish a strategic bitcoin reserve. Trump will hold a crypto summit at the White House on Friday.

Donald Trump's crypto project netted $350 million from his memecoin launch, according to the Financial Times.

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The chart

When inflation was in focus the U.S. nonfarm payrolls report tended to take a bit of a back seat in markets. But now economic growth worries abound the jobs market is back fully in the spotlight. However, as this chart from BTIG's technical strategist Jonathan Krinsky shows, the NFP report has still managed to mark inflection points for the market over the past year.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   AVGO    Broadcom 
   PLTR    Palantir Technologies 
   GME     GameStop 
   TSM     Taiwan Semiconductor Manufacturing 
   MSTR    MicroStrategy 
   AAPL    Apple 
   LUNR    Intuitive Machines 
   AMZN    Amazon.com 

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-Jamie Chisholm

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March 07, 2025 06:27 ET (11:27 GMT)

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