The Bull Thread

Since 1990, the S&P 500 is up 9.8% on average per year.

 

The Nasdaq 25 Years Later
Mon, Mar 10, 2025

Twenty-five years ago, the fun of the Dot Com boom came to an end. Roughly beginning in December 1994 with the release of the first internet browser, Netscape, the Nasdaq would go on to rally just under 600% through the closing high set on March 10, 2000. After that high, the index declined with persistent losses as it didn't find a bottom until over two and a half years later in October 2002. By then, the index was down 77.8% from its high, and it wasn't until 2015 that the Nasdaq eventually reclaimed those prior highs. Fast forward to today, even though the Nasdaq has once again pulled back from its most recent highs, the index is now up 250% since that Dot Com peak and is up almost 1,500% since the 2002 low.



A quarter century later, the Nasdaq is once again in the midst of a new technical revolution with the emergence of AI. Additionally, while on March 10, 2000, the Nasdaq hadn't quite started to roll over, today it is in a significant drawdown having fallen 13% from the December 16 high. In the chart below, we show the drawdowns in the Nasdaq in the year after the 2000 high versus the current drawdown so far since the December peak. As shown, the pullback off of the Dot Com high was much more rapid that what has been seen lately. For the comparable number of trading days, the Nasdaq was already closing in on a 40% decline in 2000 versus only a 13% drop currently. Additionally, this latest drop has seen the Nasdaq actually trade sideways for about a month before things really started to fall off a cliff in the past couple of weeks.



While the move off of the recent high doesn't exactly line up with the Dot Com era, using a different starting point shows a much greater correlation. Below we show the performance of the Nasdaq in the three and five years following the releases of Netscape and ChatGPT. As shown, the two lines have tracked one another remarkably well including this latest pullback.

 

March Madness Sets Up Ides of March Washout Bounce

Stormy March markets have battered stocks lower in the first half of the month in recent years. Named after Mars, the Roman god of war, the third month of the year often serves as a battleground for bulls and bears. Julius Caesar may not have heeded the famous warning to “beware the Ides of March,” but perhaps the bears should take heed this year, at least for a bounce.

Several key technical levels have been breached which unfortunately brings support around the September lows and last March’s highs in the 5300-5400 area into play. But a near term bounce is setting up for later this week or early next, though it will need some sort of catalyst from President Trump, the Fed, Congress, rates, inflation or geopolitics to trigger it.

 

March Madness


“The stock market is the only place where things go on sale yet everyone runs out of the store screaming.” Old Wall Street saying

What is it about March that brings volatility? Yesterday was the worst day of the year for stocks and worries over tariffs and a growing trade war dominate the headlines. Now the truth is this early year weakness wasn’t a surprise, as we’ve discussed many times. I was on CNBC in mid-February and even said to expect a potential banana peel drop.

As we’ve discussed before, early year weakness in a post-election year isn’t abnormal. Early year weakness after a 20% year isn’t abnormal. And early year weakness the past 20 years hasn’t been abnormal either. No, no one should ever invest purely on the calendar, but March has had some nice lows over the years and as we show below, the past two decades it has been perfectly normal to see late February to early March weakness, but then a nice bounce.







We’ve Been Here Before
It is important for investors to remember what happened two years ago this month, as the 16th largest bank in the United States went under virtually overnight and many expected the Regional Bank Crisis to spark a new bear market, but it didn’t. The S&P 500 actually finished that month higher. Then five years ago we shut down our economy during a once-a-century pandemic. Stocks eventually fell 34% in five weeks, but then bottomed on March 23, 2020 and finished with a solid 16% gain in 2020. Then who could ever forget the Great Financial Crisis, which bottomed on March 9, 2009 after a down 56% generational bear market? The point is you might feel scared, frustrated, and confused now, but there have been many other times this has happened and many of them have taken place in this very month, but all were major lows as well. We got past those times and we will get past this one.



Putting Things in Perspective
Yesterday was a bad day, a very bad day, as the S&P 500 fell 2.7% for the worst day of the year so far. Last year saw a 3.0% down day and still had a great year, so this got me thinking how normal it is for a good year to have a bad day. Turns out, it is quite normal. I found 22 years the S&P 500 gained 20% for the full year and the worst day of the year was down 3.5% on average those years. Incredibly, 1997 had a worst day down nearly 7%, yet gained more than 30% for the year.



The average year since 1980 has averaged a 14% peak-to-trough correction on average. 2025 is up to 8.5% off the recent highs and as I’m typing this, and things could be worse by the time you read this, but it is again important to remember we haven’t had a 10% correction since late in 2023 and the odds we would go all of 2025 without one were likely slim. As you can see, double-digits corrections happen a good number of years, but still finishing higher for the year is common as well.



Volatility Is the Toll We Pay to Invest
If you’ve read these missives before then you’ve probably heard us say that volatility is the toll we pay to invest. So 2025 won’t be the first year ever to go up each day and never have a scary headline, because that’s just not the way that markets work. This is officially the first 5% mild correction of 2025, something that even the best years tend to see, and no reason in itself to become pessimistic. In fact, we had two 5% mild corrections last year plus a 10% correction, and one mild correction in 2023, but both years gained more than 20% when all was said and done. And trust us, during each of those times the past two years fear was rampant on the weakness, just as we are seeing currently.

Could this weakness turn into a 10% correction? Given stocks are one bad day away, that is quite possible, but we do not expect things to get much worse and the odds of a full-blown bear market remain quite slim. As uncomfortable as this recent volatility feels, know that it is the toll we must pay to invest.



Thanks for reading and here’s to a little less madness this March!

 

Can Luck O’ the Irish Stem the Tide? S&P 500 Up 23 of Last 31 St. Patrick’s Days

Céad Míle Fáilte! After a challenging first half of March, the market could sure use some good luck to have any chance at a full-month gain. Saint Patrick’s Day is the only cultural event that perennially lands in March.

Since 1950, the S&P 500 posts an average gain of 0.27% on Saint Patrick’s Day (or the next trading day when it falls on a weekend), a gain of 0.07% the day after and the day before averages a 0.11% advance. More recently since 1994, Saint Patrick’s Day market performance has been improving. S&P 500 has been up 23 times in 31 years with an average gain of 0.70%.

In the ten years, since 1950, when St. Patrick’s Day falls on a Monday, like this year, S&P 500 has been green six times but posts an average loss of -0.01% due to a 3.01% drop in 1980. Fridays before have been somewhat weaker, up 5, down 5 but with an average gain of +0.04%. Tuesdays following the parades and revelry have been mixed, up 6 of 10 with an average loss of -0.08%.

 

Treasuries Playing Defense Again (for Now)


For the second consecutive decline of 5% or more in the S&P 500, long Treasuries have been playing defense, at least so far. Here “playing defense” means a return better than short Treasuries, although over short periods of time that’s usually near zero. I’m using long Treasuries here as a proxy for bonds, because they tend to play the strongest defense when bonds are working.



Is that a reason to “like” bonds again? It depends on what you mean by “like.” It’s not a reason to prefer bonds to stocks. In fact, over the course of the drawdown bonds have grown somewhat less attractive and stocks more attractive. And while we’ve downgraded our growth expectations and the likelihood of “animal spirits” giving the economy a boost, our baseline remains that strong income growth and the potential for a fiscal boost in the back half of the year makes a recession in 2025 unlikely. We would expect that to be a good environment for stocks (See Carson Global Market Strategist Sonu Varghese’s excellent commentary here and here.) The calendar also still looks generally supportive of equity gains over the rest of the year. (See Carson Chief Market Strategist Ryan Detrick’s always insightful thoughts here.)

There continues to be a lot of uncertainty around interest rates, as the Fed remains “higher for longer” amid the uncertain impact of policy, especially tariffs, on inflation. This doesn’t mean the Fed won’t cut, but only that outside a clear deterioration in economic conditions, the pace of rate cuts is expected to be slow and the point at which rate cuts stop will likely be higher than what we’ve seen starting with the Great Financial Crisis. Right now the market is pricing in three rate cuts over 2025 with the next cut coming at the June 17 – 18 FOMC meeting.

But bonds have two and a half things going for them that they didn’t have leading into the “bondmageddon” that started in August of 2020 and lasted until October of 2022:

-Starting yields are higher, and over time (roughly the average maturity of the bonds currently in the index), yields are a good forecaster of returns (see below). Think of it this way. As of yesterday, the yield on the Bloomberg Aggregate Bond Index was 4.65%. If yields don’t move, that’s your expected return over the next year and provides some cushion if yields press higher. Back in August 2020, the yield on the index was 1.05%. That means that bond yields need to rise enough to cause a 3.6% decline in bond prices before 2025 is on roughly an equal footing with 2020.



-Longer-term yields (10-year Treasuries and longer) are slightly above shorter-term yields. Not by much given recent yield declines, but before the Fed started cutting rates, shorter-term yields were more attractive.

-And finally, bonds have been playing defense of late, but this one only counts ½ since it’s not going to play out in all scenarios. If we get a scenario where growth expectations slow meaningfully but inflation expectations rise, the correlation of stocks and bonds could rise, with bond declines accompanying stock declines. But slower growth is usually disinflationary, and if that outweighs any inflationary policy impact, then bonds can continue to play defense during a growth scare. These possibilities are captured nicely in the below chart from our Outlook 2025 with the current sell-off added for comparison.



So how to handle bond positioning? Since we are overweight equities, we remain biased toward higher quality bonds, preferring to take more equity-like risk in equities. That includes some exposure to Treasury inflation-protected securities (TIPS). Since we are underweight bonds, we are willing to run at a level of interest rate sensitivity somewhat above the Bloomberg US Aggregate Bond Index, which we use as a bond benchmark. But on a portfolio level that still leaves us below our multi-asset benchmarks in overall rate sensitivity. And we do look for ways to diversify stocks outside of just bonds (and diversify bonds!), including a tactical allocation to gold, incorporating trend-following strategies that can provide exposure to a wide range of assets, and even incorporating lower volatility stock exposure into our portfolios.

 

Houston, We Have a Correction. Now What?


“Everybody in the world is a long-term investor … until the market goes down.” Peter Lynch, famous fund manager

After another big down day on Thursday, stocks officially fell into a correction, with the S&P 500 down more than 10% from the February 19th peak. Although this hasn’t been fun, we can’t say it wasn’t totally unexpected, as late February to early March is one of the more seasonally weak times of the year, not to mention the first quarter of a post-election year is one of the weakest quarters in the four-year presidential cycle. Here’s a chart we’ve shared a lot that shows just this. Then factor in that the first quarter after a 20% gain tends to be weak and that the past 20 years the first quarter has been weak in general, and things were ripe for some volatility early in 2025.



We’ve been on record that at some point this year we’d probably see a 10% correction and here it is. No, I didn’t think it would happen this quickly, but always remember that stocks take the escalator up, but the elevator down.

Another popular chart we’ve shared a lot is how 10% corrections tend to happen once a year on average (shout out to Ned Davis Research for this data). Given we didn’t have a correction last year, you could say the odds favored having one this year.



Is This Normal?
Trust me, I get it. This doesn’t feel normal. We are in the middle of a seemingly escalating trade war with uncertainty dominating everything. Markets can take good news, they can even take bad news, but they hate uncertainty and we have a lot of it.

Still, over the past 46 years this is now the 24th year with at least one correction at some point during the year, meaning these corrections happen a lot. Of course, not all corrections become bear markets. I found 16 years stocks had a correction, but didn’t fall into a bear market that year (which is what we expect to happen this time), and stocks gained a solid 9.5% for the year and were higher for the year 10 times in those cases. Remember that since 1950 stocks are up 9.5% on average.



A little more color on the chart above. The average year sees a 14.0% peak-to-trough correction and the years that have fallen 10% at some point, but finished the year higher, ended up with a 17.5% average return for the year. With the S&P 500 down 6.1% for the year, there’s still time for it to get back to positive and maybe even by a large amount. Don’t give up hope just yet.

Could This Turn Into a Bear Market?
Of course anything is possible, but as of now we’d put the odds of this turning into a bear market (so down 20% from the February 19th peak) quite low. First off, we found there have been 48 corrections in history and only 12 of them turned into a bear market, so only 25% have gone on to move into bear market territory.



Another Bear Would Be Quite Rare Part 2
If this turned into another bear market it would set a new record and I guess this would be under the “records we don’t want” category.

The S&P 500 peaked on February 19, 2020 before the Covid bear market and then we had another bear market in 2022. We’ve never seen back-to-back bears so close (only 1.9 years apart), so could we really have a third bear so soon? If we did that would be three bear markets starting within five years of each other, breaking the previous record of nearly seven years between 1966 and 1973. Again, anything is possible, but I’d say another bear this soon after the previous two isn’t a likely scenario.



Here’s a tweet I did on how many bear markets we’ve seen per decade. Again, could we really have three bears in only half a decade?



What Are We Doing?
Remember, our team doesn’t just write or talk about what is happening, we manage real money for our Carson Partners. The majority of our models have done extremely well the past few years, mainly due to our large overweight to equities. We are still overweight equities now, but we’ve been making changes since late last year to help prepare for a year that was likely going to be a tad more volatile than the past two.

If you are all in the “Magnificent 7,” yes, this has been quite rough, but if you have a well-diversified portfolio it isn’t nearly as bad as they keep telling you on TV.

Here and now we are preaching to stay diversified. Yes, the S&P 500 is down more than 6% for the year, but core bonds are up a couple percent, long Treasuries are up close to 4%, gold is up double digits, and most European market are up in the upper teens or more.

We have exposure to all of these areas to help with this kind of volatility. We added gold in our tactical models as far back as March 2023, then added more after the big gold drop after the US Election in 2024, while we finally added some Treasuries late last year and added Treasury inflation-protected securities (TIPS) about a month ago. We have an allocation to international stocks and are actively considering whether we should add a little more. Yes, small caps have been quite disappointing, but we’ve been in both small and midcaps (what we call SMID) and midcaps have done a tad better than small caps. We won’t get them all right and will certainly have our share of incorrect calls, but the good investors are those who keep those mistakes small.

 

March Quarterly Options Expiration Week: S&P 500 and NASDAQ Up 12 of Last 17

March Quarterly Option Expiration Weeks have historically leaned bullish. S&P 500 has been up 27 times in the last 42 years while NASDAQ has advanced 25 times. More recently, S&P 500 and NASDAQ have both advanced 12 times in the last 17 weeks. But the week after is the exact opposite, S&P down 27 of the last 42 years—and frequently down sharply. In 2018, S&P fell –5.95% and NASDAQ dropped 6.54%. Notable gains during the week after for S&P of 4.30% in 2000, 3.54% in 2007, 6.17% in 2009, and 10.26% in 2020 appear to be rare exceptions to this historically poorly performing week.

 

A Less Than Magnificent Year


The Magnificent 7 group of stocks has seen a poor start to 2025. The group entered 2025 with premium valuations, and expectations for premium growth to continue. But earnings growth has only fallen in line with the broader market, and that represents a sharp slowdown compared to the group’s recent performance. Investors may be well served to ask whether new products coming to market may send the group’s growth rate higher for the remainder of the year.

The Magnificent 7 group of stocks has so far underperformed the broader S&P 500 in 2025. An equal weight portfolio of these stocks has returned -15% year to date, representing a large underperformance against the -5.9% return for the S&P 500 (FactSet data, as of 3/13/2025 closing prices). This result marks a sharp turnaround from the previous two years of stellar returns and notable outperformance for the group of technology-related stocks, as shown below. In fact, the tech sector is off to its second worst start to a year in the past decade, faring better than only 2022. You can see that displayed below by ranking % returns on a yearly basis.



A combination of high beginning valuations and cooling earnings growth for these companies may be to blame for their lackluster return. My colleague Grant Engelbart, VP, Investment Strategist recently charted technology’s premium valuation, both relative to its own history and against other market sectors. Premium valuations often demand premium fundamentals if investors expect to outperform the market while owning the stocks. But the Magnificent 7’s fundamentals have slowed down on a relative basis. Earnings revisions so far this year for the group have nearly mirrored the S&P 500 through the first 10 weeks. Analysts polled by FactSet expect the Magnificent 7 stocks to earn only 2.1% more over the next twelve months than they did at the beginning of the year, nearly the same as the 1.9% revision to the broader S&P 500, as shown below. With expected fundamental performance only on par with the broader market, investors have not been willing to pay a higher valuation.



The Magnificent 7’s current expected earnings growth is much slower than what powered the group to outperform in 2023 and 2024. With all companies in the group having reported their latest quarterly results, sell-side analysts polled by FactSet have only revised higher the group’s next twelve months’ (“NTM”) expected earnings per share (“EPS”) by 2.1% since the start of 2025. At this time in 2024, analysts had revised the Mag 7’s NTM EPS higher by 9.1%, and ultimately to 40% by the end of the year, which drastically outpaced the broader market. If the group’s positive 2024 EPS revisions represented ‘premium fundamentals’ and justified their higher valuations, 2025 fundamental performance has so far been less than premium.



Investors may be well suited to ask themselves whether this fundamental performance represents a maturation of the group’s growth drivers, or rather a temporary business performance slowdown before a resumption of earnings growth. I’m reminded of the growth transition that Nvidia is currently experiencing. After bringing new products to market that have powered the AI boom – and the earnings growth of some of its largest customers – the company’s latest earnings only met expectations. This has been driven by some delays and interruptions in the launch of its newest products but may prove transitory. It’s largest customers – such as Microsoft, Google and Tesla, to name a few – have also noted that they remain ‘supply constrained’ amidst the delay of Nvidia’s rollout and are eager to take delivery of more chips. If investors believe that, and that the delivery of these newer, higher powered products, may unlock future earnings growth, the less than magnificent year may be due for a turnaround.

2025 has been a ‘Less than Magnificent Year’ so far, with the group of Magnificent 7 stocks lagging the broader the S&P 500. Valuations for the group were high to start the year, and while valuation is a poor short-term timing tool, the elevated valuation suggested that investors expected their premium fundamental performance to continue outpacing the market. That hasn’t happened, as the group’s earnings revisions have only fallen roughly in line with the broader market. And that’s a sharp slowdown compared to 2024’s outperformance. Investors may be well served to ask if this is a temporary or sustained slowdown. New products coming to market may be able to rejuvenate the group for the remainder of 2025.

 

Four Reasons Not to Panic and Sell Right Now


“So, you’re telling me there’s a chance?” Lloyd Christmas in Dumb and Dumber

As I wrote about last week in Houston, We Have A Correction, Now What?, the S&P 500 has been volatile lately and recently moved into a correction (down more than 10%). Today I want to discuss a few more things you should know about stocks in a correction and why panicking right now and selling could be a bad investment decision.

Why a Quick Move into a Correction Could Be a Good Thing
If your head is spinning from being at an all-time high to down more than 10%, then you aren’t alone, as this was one of the quickest trips ever to do just that. In fact, it took only 16 trading days to achieve this dubious feat, but it turns out this isn’t really bad news.

We found six other corrections off an all-time high that took place in less than one calendar month (or about 21 trading days) and the good news is quick snapbacks are quite common. In fact, the S&P 500 has never been lower three and six months later, with an average return six months later of an extremely impressive 14.7%. Who said roller coasters weren’t fun?



What If This Isn’t the Next Bear Market?
We are on record that this won’t turn into a full-fledged bear market, which means stocks won’t be down 20% or more. That right there is a reason not to sell, but assuming that is the case, we found 12 other times stocks moved from an all-time high into a correction, but didn’t fall into a bear market. Looking into this showed stocks were higher six and 12 months later every single time, with much better than average returns as well.



What I found incredible is that five of those 12 times saw stocks bottom the day they moved into a correction (which in our case would have been Thursday). That is way more than I would have ever expected. Will we do it again? Well since we haven’t violated last Thursday’s low yet, to quote our friend Lloyd Christmas, I’m saying there’s a chance!

Friday and Monday Were Rare and Potentially Bullish
Some more good news and why you shouldn’t sell right now is we saw a potential buying thrust, consistent with higher prices coming. How do weak markets end? I like to say when the selling stops. Kind of obvious, but with all the negativity we’ve seen anyone who wanted to sell likely has done so, leaving only buyers. Well, the buyers showed up Friday and Monday, as both days saw more than 90% of the components of the S&P 500 higher. This is extremely rare but could be a clue a major low is in place or trying to form.

The last time we saw this was in early October 2022, right as that bear market was ending. You can see on the table below we’ve seen strong returns after previous buying thrusts, with the S&P 500 higher six months later 10 out of 11 times and up nearly 11% on average. This coupled with the data from above suggests the potential for better-than-expected returns over the next six months, which might surprise many investors who are positioned for the worst.



Here’s the same data but in the form of a nice chart of the S&P 500.



Lastly, a Valuable Reminder
We’ll leave you with this always popular reminder. If you miss out on the 10 best days of the year historically, you will miss out on significant gains. The catch is the best and worst days usually happen close to each other! So if you have to sell after the worst days, it likely means you will miss out on the eventual coming best days. We saw this just last week: Monday last week was the worst day of the year so far, but Friday was the best. Last year stocks gained more than 23% but if you missed the 10 best days that drops to less than 4%. Same thing for 2023. In fact, the average year since 2000 has gained 9.5%, yet drops to negative 12.5% if you missed the best 10 days of the year, a more than 20% drop!



We know this correction doesn’t feel good. Corrections never do. But understanding market history is an important aid in making the decisions needed to achieve long-term investing goals.

 

Market Bounce Has Room to Run

After being mauled by bears in the first half of the month, the market appears to have found some support just before mid-month. As of today’s close, March 19, month-to-date losses have been trimmed to DJIA –4.3%, S&P 500 –4.7%, NASDAQ –5.8%, and Russell 2000 –3.7%. This is notable improvement from the March 13 closing lows when losses ranged from –6.9% by DJIA to –8.2% from NASDAQ. Based upon March’s seasonal trend over the recent 21 years, the current market bounce does have room to continue through the end of the month.