By Teresa Rivas

At least it wasn't a loss.

The stock market couldn't muster the strength to produce meaningful gains this past week to offset previous losses, but it did manage to fend off potential declines as smaller, cheaper stocks helped neutralize continued losses in Big Tech. The S&P 500 index advanced 0.5%, while the Nasdaq Composite inched up 0.2%, and the Dow Jones Industrial Average rose 1.2%.

The S&P 500 may have snapped a four-week losing streak, but the big worries dogging the market haven't gone anywhere. Tariffs may be the biggest, as consumers, businesses, and investors remain on tenterhooks about how policy will shake out as President Donald Trump's April deadline approaches. No wonder the Federal Reserve emphasized uncertainty on Wednesday. While Chair Jerome Powell's remarks soothed some nerves, it was only to an extent. As Capital Economics' Thomas Ryan notes, "The Fed is struggling to provide forward guidance without clear policy direction from the new administration."

That lack of clarity has continued to weigh on Google parent Alphabet, Amazon.com, Apple, Facebook parent Meta Platforms, Microsoft, Nvidia, and Tesla, the former stars of the rally, with the Roundhill Magnificent Seven exchange-traded fund finishing the week down 0.7%. The weakness is starting to call into question the American exceptionalism trade. "The new administration in Washington has created a very high level of generalized uncertainty that goes beyond trade policy itself," writes Alain Bokobza, Société Générale's head of global asset allocation. "We now wonder whether the long-awaited 'Great Rotation' out of U.S. assets...has begun."

One upside is that the Magnificent Seven are " cheaper" than they've been for years: The premium of the group compared with the S&P 500 is at its lowest point since 2017.

The Nasdaq, however, only narrowly avoided a fifth straight drop, while the previous four weeks featured declines of 2% or more -- a situation that has happened only eight times before. History suggests that it isn't time to go bargain hunting, notes Bespoke Investment Group. In the past, after such a drop, the index was still negative in the following one-, three-, and six-month periods.

If Big Tech's period of primacy is really over, investors will need to break their buy-the-dip habits. "While relief rallies typically take up the old winners...which is something that occurs because many investors are conditioned in a Pavlov's dog sense, longer-term investors should also continue to hold Defensive Value," argues Stifel Chief Equity Strategist Barry Bannister.

Buying cheap stocks worked fairly well this past week, whether large or small: The large-cap Russell 1000 Value index gained 1%, and the small-cap Russell 2000 Value index rose 0.5%.

Investors might want to curb their enthusiasm for small-caps, however. The sheer proliferation of private-equity and venture-capital firms in recent years has translated into more quality small-cap stocks being kept in private hands rather than debuting in public markets, notes DataTrek Research co-founder Nicholas Colas.

"That explains both their chronic underperformance and lower price return correlations to large-cap stocks, which do not suffer from the same phenomenon," he writes. "Our view is that U.S. small-caps are now 'trades' -- a place to occasionally put capital, usually at the bottom of an economic/market cycle -- rather than productive long-term investments."

So much for small victories.

Write to Teresa Rivas at teresa.rivas@barrons.com

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(END) Dow Jones Newswires

March 21, 2025 21:30 ET (01:30 GMT)

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