The U.S. stock market has been experiencing a significant sell-off in recent weeks. Investors are closely watching the S&P 500 index for signs of relief. Morgan Stanley analysts suggest that the 5,500 level could be a crucial support point for the index.
From the @WSJ article, “The Week the Smart Money Got Whipsawed by the Market: Hedge funds usually like to take advantage of stock-market unrest. Lately, they have helped spread it instead.”#markets pic.twitter.com/SFYAtfBcVe
— Mohamed A. El-Erian (@elerianm) March 15, 2025
The S&P 500 has declined by 8% since mid-February and is currently down 9% from recent highs.
What a few weeks for the US stock market.
With today’s decline, the S&P ended the trading session in correction territory.
The speed of the correction is eye popping. It only took the index three weeks to fall 10%.#markets #stocks #investing #investors pic.twitter.com/GukL4umnfq— Mohamed A. El-Erian (@elerianm) March 13, 2025
The market slump has been driven by a combination of factors, including tariff-related issues, fiscal-policy drags, and a strong dollar. Investor concerns have been heightened by Washington’s tariff threats, fears of higher inflation, and recent immigration enforcement policies.
Budget-cutting actions have also negatively impacted earnings expectations.
S&P 500 turned higher at the 61.8% retracement of the August lows/Feb peak and above the July/Sept trendline.
Coupled with the likelihood of better seasonals after mid-March and we could have the first small bit of good news in weeks. pic.twitter.com/nNhrN6XAio
— Ryan Detrick, CMT (@RyanDetrick) March 14, 2025
Despite the challenging environment, Morgan Stanley believes that several tailwinds could provide support to the market at around the 5,500 level later this month. These include a potential improvement in the economic surprise index, a weakening dollar, and seasonal enhancement in earnings revisions and equity performance.
Can stocks really bottom the day they move into a correction (based on closing 10% off of ATHs)?
Turns out they can, as it happened on: 3/5/1968, 1/30/1990, 10/27/1997, and 2/8/2018.
Will 3/13/2025 be added to this list? pic.twitter.com/6uxe9bxlZH
— Ryan Detrick, CMT (@RyanDetrick) March 14, 2025
Morgan Stanley remains optimistic about the S&P 500’s potential to reach 6,500 by the end of 2025, though the journey is expected to be volatile. However, in a bear case scenario where growth falls off more significantly and recession becomes likely, the S&P 500 could trade toward a target of 4,600. Wall Street’s confidence in corporate earnings is fraying, threatening more turbulence ahead for the stock market.
Profit forecasts for S&P 500 companies have seen more downgrades than upgrades for 22 of the past 23 weeks, the longest stretch since early 2023.
Investor concerns over market volatility
Some U.S. companies, such as American Airlines Group Inc.
and Delta Air Lines Inc., have already sent worrying signals about their earnings outlooks. Retailers like Kohl’s Corp., Abercrombie & Fitch Co., and Walmart Inc. have also sounded a cautious note.
Analysts still see a 10% advance in S&P 500 earnings in 2025, down from a 13% forecast in early January. However, there may be room for further downside, with some analysts expecting annual profit estimates to be trimmed to the high single-digits. Investors hope that President Donald Trump will either soften or remove tariffs before they pinch profits.
However, if negative earnings surprises are injected into the market, things could become more turbulent. Morgan Stanley’s Michael Wilson, who turned positive on U.S. stocks last year, believes the current market drawdown is likely to last until the middle of the year. From that point, he sees a volatile path to his 6,500-point end-of-year price target for the S&P 500.
However, if the economy moves toward recession, Wilson warned that stocks could fall another 20% from current levels. The uncertainty tied to tariff policies is being offset by easing inflation pressures, which likely means the Federal Reserve will keep its benchmark lending rate unchanged for longer than markets anticipate. Investors are closely monitoring economic data and developments to navigate the uncertain market landscape.
While some analysts suggest selling into any relief rallies, others remain optimistic about the longer-term performance of stocks.
Photo by; Anna Tarazevich on Pexels
