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Still Whistling Past But With A Limp

March 3, 2025

Good morning,

Investors have felt nervous and uncertain since the inauguration. Markets didn’t begin to reflect that uncertainty until last week when the equity market volatility index (VIX) climbed above that “Fear” threshold of 20. Friday’s late afternoon parabolic rally in stocks (the S&P 500 Index ended the day +1.59%) relieved a lot of pain from the selling earlier in the week. On the week, the S&P ended down -.97%, Nasdaq -3.45%, Russell 2K -1.44%, and Int’l Dev’l -.81% (best of the bunch last week). Worth noting Emerging Markets’ -4.30% week, breaking a relative outperformance trend of late.

It is too soon to say whether the correction is over. As impressive as it was, one afternoon of rally is an inconclusive data set. The best signal of a likely end of a correction is when extreme sentiment reverses upward. Sentiment is extreme but didn’t reverse up Friday. A hint of good news is that late Friday’s rally is sticking this morning. Futures are up +.40%.

Internal market signals have been stubborn to decline in our recent correction, which may suggest that the water-fall decline earlier last week is over. However, I think we’ll have to live with this elevated volatility for a while. Volatility without multi-day market plunges may be the best we can ask for, considering there seems to be no let-up from White House policy machinations.

This week ahead is light on economic data and earnings (a few big retailers). Not light will be more tariff talk and U.S./Ukraine discussions (or not).

Be well,
Mike

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