Market View: May 2025

By Argent Wealth Management, LLC on May 2, 2025

A Different Type of Correction: What Indicators Tell Us Today

This correction has been different than many because it was caused by economic policy that can be quickly changed. It has not been caused by a structural issue with the economy or a pandemic. That has made it difficult for most strategists and economists to determine what to do with investment portfolios based solely on the trend in economic data.

In times like this, it becomes more important than usual to watch stock market signals. Stock markets have historically been reliable forward indicators. Investors can look at historical market patterns and subsequent outcomes to help determine stock market direction. This is sometimes called technical analysis.

This Market View builds on the technical analysis of the Market View published April 12 that outlined the four-step “W” pattern typical in stock market corrections.

1. Sell-off (downtrend that started February 19)
2. Rebound (April 9)
3. Retest of low during sell-off
   • This was TBD on April 12. Based on the chart below, it was likely April 21, when the S&P was within ~4% of the low on April 8.
4. Breadth thrust and new bull market

The indicators below suggest, barring any negative shift in economic policy or an unforeseen event no one can predict, that it is more likely the worst of this correction is behind us rather than ahead of us.

It is starting to look like we are on step 4. The typical “W” pattern is evident below.

Fig. 1: SPDR S&P 500 ETF Trust

Signs We Are On Step 4

Since 1970 there have been 14 times when the S&P 500 is up over 1.5% a day three days in a row. In all cases, a year later, the S&P 500 is positive. The average one-year return after this signal is triggered is 22.13%.

When the market is that strong three days in a row, it indicates investors are coming off the sidelines predicting the worst of the correction is in the rearview mirror.

Fig. 2: S&P 500 Index vs. 3-Day Price Thrust Indicator

Since July of 1950, when the ratio of the 5-day average of the number of advancing stock issues (stocks that went up) to the 5-day average of the number of declining stock issues (stocks that went down) is over 2.5 on the New York Stock Exchange, the S&P 500 has been up 42 out of 44 times a year later with an average return of 20.67%.

When a lot more stocks are going up than down, it is a breadth thrust, and historically a positive sign.

Fig. 3: S&P 500 Index vs. NYSE Composite 5-Day Advances/5-Day Declines

The Zweig thrust indicator is essentially a 10-day moving average of the ratio of stocks that have advanced (went up) divided by all stock issues (stocks that went up or down).The higher the ratio, the more breadth there is in the market, which could signal the beginning of a bull market.

Since October of 1980, when this indicator is hit, the S&P 500 is up 35 out of 38 times a year later by an average of 15.41%.

Fig. 4: S&P 500 Index vs. Zweig Thrust Indicator

While the below indicator did not hit, it came close, and it may hit today at the time of writing this on May 1. On April 25, 88% of stocks were above their 10-day moving average. Historically, when over 90% of stocks are above their 10-day moving average, 40 out of 42 times a year later the S&P 500 is up by an average of 15.23%. Being close is a positive sign, and in conjunction with the indicators above, builds on the evidence that we are likely on step 4.

Fig. 5: S&P 500 Index vs. NDR Multi-Cap Equity Series % of Stocks Above Their 10-Day Moving Averages

There are 10 indicators like this we follow, and 8 have either hit or come close as of 4/30/2025.

Sentiment

On April 7, just prior to the rebound (step 2), investor trading sentiment was lower than it was in 2008 during the global financial crisis. It has since recovered. Investors are more optimistic now. Market returns are lower when investors are more optimistic, as seen in the chart below.

Fig. 6: S&P 500 vs. NDR Trading Sentiment Composite

While it is more likely than not the worst is behind us, and we may be entering a new bull market, it is unlikely to be a straight line. Expect continued volatility as investors digest economic developments born from current economic policies, or as economic policies shift. Again, this volatility is due to fast-changing economic policy, which can be interpreted by investors either positively or negatively and is somewhat unknown.

The true effects of the current or future economic policies, both short-term, and long-term, are still uncertain. Having said that, most bull markets occur when there is a “wall of worry,” as we have now.

Once there is no worry, and investors are complacent, as they were at the beginning of 2025, stock markets are ripe for correction. Until then, barring anything that is negative and unexpected, indicators suggest the direction is more likely to be up than down from here.

Sources: Fig. 1: Factset, Argent Wealth Management, LLC © 2024 on 5/1/2025, Fig. 2: Ned Davis Research, Inc. © 2024 on 5/1/2025, Fig. 3: Ned Davis Research, Inc. © 2024 on 5/1/2025, Fig. 4: Ned Davis Research, Inc. © 2024 on 5/1/2025, Fig. 5: Ned Davis Research, Inc.© 2024 on 5/1/2025, Fig. 6: Ned Davis Research, Inc. © 2024 on 5/1/2025

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