Seasonal: Bullish. April is the #2 month for the DOW and S&P 500 (since 1950), and #4 NASDAQ month (since 1971). In post-election years, April is also second best for the DOW and S&P 500 but improves to third best for NASDAQ. Average gains also improve in post-election years. Tax deadline impact has faded. April historically firm start to finish over last 21 years. April is the final month of the “Best Six Months” for the DOW and S&P 500.
Fundamental: Mixed. Q4 GDP was revised 0.1% higher to 2.4%, but the Atlanta Fed’s GDPNow model is estimating Q1 growth could decline 1.8% as of their March 26 release. The unemployment rate remains reasonably solid at 4.1%, a modest improvement from its recent peak, but the pace of monthly net job gains appears to be slowing. Inflation appears to have resumed its slow retreat but still remains above the Fed’s stated 2% target. Slowing growth and elevated inflation are raising concerns about possible stagflation. Beyond the mixed data, tariffs are the greatest uncertainty the market is currently facing. More tariff related announcements are expected.
Technical: Bounce fading? After finding support around last September’s lows, the DOW, S&P 500 and NASDAQ all bounced back. At the peak of the bounce, the DOW and S&P 500 had temporarily reclaimed their respective 200-day moving averages. With the bounce-back losing steam, the next best technical setup would be for the indexes to trace out a “W” bottom pattern. This would entail a test of the recent lows before rebounding higher once again. Should the retest fail, the levels to watch are around DOW 40250, S&P 500 5390, and NASDAQ 16700.
Monetary: 4.25 – 4.50%. The Fed is in “wait and see” mode. They acknowledged the economy has continued to expand at a solid pace and inflation remains somewhat elevated. Two additional 0.25% interest rate reductions later this year remain on the table (perhaps as early as June for the first). Some are now calling for 3-4 more rate cuts this year. But more progress reducing inflation is still needed and that is likely to take more time. Perhaps the biggest change in policy in March was the announcement that the Fed is going to slow the pace of quantitative tightening. Beginning in April, its monthly redemption cap on Treasury securities will decline from $25 billion to just $5 billion. This could modestly lower interest rates.
Sentiment: Improving. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors stand at 30.5%. Correction advisors are at 40.7% and Bearish advisors were at 28.8% as of their March 26 release. Following three straight weeks where bears outnumbered bulls, the bulls have reclaimed a slim lead. However, correction advisors are up to 40.7%. With most advisors anticipating weakness now, the contrarian view would likely begin to see current weakness as an opportunity. Until tariff uncertainty eases, volatility is likely to remain.
March is a volatile month for the market, especially at the end of the month, frequently with wild swings in both directions. End-of-quarter portfolio restructuring likely plays a role as managers lock in any gains and look to establish positions for the next quarter. This has all been exacerbated by the continued shake-up in DC, which is typical of the post-election Q1 weak spot. The new Trump 2.0 administration’s challenging tariff negotiation tactics along with the unprecedented actions to cut waste in the federal government have created a high degree of uncertainty on Wall Street. This has the S&P down in Q1 for the first time since 2022.
There’s no way to sugarcoat it, unless the market can get back into the green for the year in April, my more bullish base case scenario for 8-12% gains for 2025 becomes harder to achieve. Currently, the S&P 500 is tracking a weaker post-election pattern of republican administrations after the incumbent party losses. This action has increased the odds of my annual forecast worst case scenario of flat to slightly negative full year performance. The market is concerned the new republican administration and Congress may be implementing too many drastic measures, which tends to lead to flat to negative full-year performance. Unless the market can rebound substantially in April, we are likely in store for some tough sledding through the third quarter. The good news is April is usually a strong month for the market in post-election years. While the changes in DC may lead to a healthier debt level, a leaner, more efficient government and greater prosperity soon, it is all rather murky now. CEOs, money managers and analysts have been scrambling to figure out how to reposition their firms, portfolios and recommendations. If the S&P 500 tests and holds the March lows and then rallies through resistance at 5775, that would be quite constructive and increase the odds of the market shaking off this malaise and put my Base Case Scenario of 8-12% gains for 2025 back in play. Until then I remain cautious.
*Source: The Stock Trader’s Almanac
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