Why is the Market Crashing?
1. Tech Stocks Are Taking a Hit
Nvidia just reported a 78% revenue surge, but investors are punishing the stock instead of celebrating, sending it down 8.4%.
Why?
Expectations were simply too high. The artificial intelligence (AI) boom that sent stocks soaring in 2023-2024 has lost some steam, and competition is heating up. Low-cost AI models from China’s DeepSeek threaten U.S. tech dominance, making investors rethink their bets on high-flying tech names.
Before being too bearish on NVIDIA, consider the Analysts’ revisions (or lack thereof). Most are maintaining their price targets, ranging from $135 to $200!
2. Trump’s Tariff Talk is Spooking the Market
With an election year in full swing, former President Donald Trump is back on the tariff warpath, threatening massive trade restrictions on imports from China, Mexico, Canada, and Europe. Investors have seen this movie before, and they don’t like how it ends. The uncertainty around trade policy has sent a shockwave of volatility through the markets, with companies that rely on global supply chains feeling the heat.
The Volatility Index (VIX) spiked above 19 for the first time since January but is still off its 25+ high from December 2024.
3. Consumer Sentiment is Crashing
The recent growth scare isn’t just about corporate earnings or trade wars—it’s also about how consumers feel. In the past ten days, two major consumer sentiment indices have seen sudden, massive drops:
- University of Michigan Consumer Sentiment Index fell to 64.7 from 71.7 in February.
- Conference Board Consumer Confidence Index plunged to 98.3 from 105.3.
These are some of the largest declines in recent memory, and because consumer sentiment is often a leading indicator of spending patterns, analysts are bracing for a potential spending slowdown. Since consumer spending drives U.S. economic growth, this data has added another layer of fear to an already shaky market.
However, sentiment surveys have become more politically polarized, making them less predictive than in the past. The data suggests Republicans and Democrats perceive the economy wildly differently:
- Democrats’ economic confidence fell from 92.1 to 64.1 in February.
- Republicans’ economic confidence surged from 52.1 to 84.9.
This divergence suggests that sentiment swings are being skewed by political bias, which could mean the spending drop might not be as severe as feared.
Who’s Surviving the Crash?
While most sectors are bleeding, a few industries are showing resilience:
- Healthcare: As a defensive sector, healthcare stocks tend to hold up well during economic slowdowns. Investors are rotating into this space for safety.
- Utilities: Another defensive play, utilities remain a stronghold as they offer stability in uncertain times.
- Gold & Commodities: The fear trade is alive. Gold prices have been climbing as investors seek refuge in hard assets.
Meanwhile, commodities markets are sending mixed signals:
- Gold is up 0.37% to $2,929.60, as investors flock to safe havens.
- Silver and Copper are rising as well, up 0.94% and 1.04%, respectively.
- Oil markets are slightly down, with WTI crude falling 0.04% to $68.90.
- Natural gas has plunged 7.43%, indicating a potential shift in energy demand.
Where is the Bottom?
Markets rarely fall in a straight line. Here’s what could trigger a reversal:
- A Federal Reserve Pivot: If the Fed signals rate cuts or a more dovish stance, expect a sharp bounce in stocks.
- Stronger Economic Data: Any sign that the economy isn’t deteriorating as quickly as feared could spark a relief rally.
- Earnings Stabilization: If corporate earnings hold up better than expected, investor sentiment could shift quickly.
- Retail Sales & Jobs Data: Since consumer sentiment is shaky, upcoming reports on retail sales, durable goods, jobless claims, and PMIs will be critical in determining whether the market freefall continues or stabilizes.
Jobless Claims Increasing
President Trump’s America-First plan involves moving more jobs stateside and converting service-based jobs to manufacturing-based jobs. Companies like Apple (APPL) announced plans to build chips in Texas and invest in manufacturing plant infrastructure over the next four years.
Elon Musk and his DOGE team have been hard at work removing waste (aka Government workers), and now we’re seeing the four-week moving average of initial jobless claims on the rise.
Will ex-government workers make the transition to become Apple manufacturing line workers? We won’t know for a few years, but the market will likely become impatient with the President’s plan if it can’t be accelerated.
The Takeaway
The market is currently driven by fear, but smart investors know that opportunities emerge in times of panic. The CNN Fear and Greed Index is now at 18, down from 45 (Neutral) only one week ago.
Are we heading into a deeper correction, or is this just a healthy pullback? The last pullback was 5.42%, from early December to mid-January 2025. If we are in a similar pullback, we’re looking at a pivot of around 5775 in the S&P 500. However, the chart below shows a potential support area at 5875, which is right around our current price.
Stay sharp, manage risk, and be ready for the next move. Bullish seasonality starts to pick up again around March 10th, so be on the lookout.
You never know when a company like Newmont Corporation (NEM), a gold and silver mining company, might start to rebound. A 17 APR 40 call will set you back 3.30, but the stock has moved up 9 of the last 10 years between now and 33 days from now, and it’s looking like a potentially good entry point after a pullback.
Stay tuned and buckle up. This ride is getting bumpy.
