U.S. stocks are wavering at moving towards the mid-point of the year-to-date extremes this week, with investors largely divided as to how the market could perform over the coming weeks amid tariff, inflation and corporate earnings growth concerns.
A solid three-day rally has lifted the S&P 500 around 4% higher from its March 13 trough, and the highest level in two weeks, amid bets that President Donald Trump may provide some target tariff relief to U.S. trading partners when new levies are unveiled on April 2.
The benchmark remains some 6% below is February 19 peak, however, amid the collective weight of tariffs, government spending cuts, a pullback in mega cap tech performance and an overhaul of corporate earnings forecasts.
Heading into the final trading days of the month, the S&P 500 is down 3.14%, with a year-to-date decline of around 1.94%. Megacap stocks, all of which are underwater for the year, have dragged the Nasdaq to a month-to-date decline of 3.5% and a 2025 loss of 5.8%.
The S&P 500 is sitting at the mid-point of its recent extremes, having gain 4% from its March 13 lows but remaining 6% south of its February 19 peak.
Michael M. Santiago/Getty Images
So where is the market heading next?
“What’s really at the heart of the conundrum, however, is that the US might be at risk for a bout of stagflation, where growth slows and inflation remains sticky,” said Lisa Shalett, CIO and head of the global investment office at Morgan Stanley Wealth Management
Earnings in focus
“Without policy tailwinds to power equities, the onus again shifts to earnings,” she added.
JPMorgan Chase JPM will kick-off the first quarter earnings season in about two weeks’ time, but analysts are already sharply reducing their overall profit forecasts as the economy slows, consumer spending stagnate and tariff risks loom.
LSEG data suggests analysts expect S&P 500 profits will rise just 7.7% from last year to a collective $506.8 billion, down from the 17.1% pace recorded over the three months ending in December and the 12.2% forecast pegged at the start of the year.
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For the whole of 2025, analysts see S&P 500 earnings growing by around 10.5%, down from a 14% growth forecast at the start of the year.
UBS strategist Bhanu Baweja, who lowered his near-term S&P 500 price target to 5,300 points in a note published Tuesday, citing a “visibly tiring” consumer, the governments immigration crackdown and the lack of broader fiscal support.
Justin Turnquist, however, sees technical factors providing some market support over the coming after the S&P 500 narrowly snapped its four-week losing streak last Friday.
Technical support in place
“Historically, four-week losing streaks are rare, occurring only 66 other times since 1928. Following these streaks, the S&P 500 climbed 1.2%, 2.9%, and 4.6% over the subsequent one, three, and six-month periods, respectively,” Turnquist said.
He noted, however, that those returns are based on the S&P 500 trading north of its 200-day moving average, a key technical level that analysts use to gauge bullish and bearish trends.
The benchmark was pegged below that 200-day moving average when it closed modestly higher on Friday.
“When the S&P 500 was below its 40-wma, as it is currently, respective one, three, and six-month returns averaged only 0.5%, 1.0%, and 3.5%,” Turnquist said.
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BlackRock’s Jean Boivin, meanwhile, sees last week’s rally as a sign that investors are both narrowing the gap between U.S. and European stock performance and finding value in an oversold market.
“We think the slide in U.S. equities was
overdone as economic conditions don’t point to recession and corporate earnings hold up,” Boivin and his team wrote.
“But the longer uncertainty goes
on, the more growth may suffer,” he added. “We eye the ‘reciprocal’ U.S. tariffs due to be announced on or before April 2 – and any fallout.”
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