The Trump Correction
As of this morning, the NASDAQ Composite Index has entered a “correction”. What does this mean? What might lie ahead? How should I think about my investments now, and over the next few months? Will this impact my long-term plans? These questions are racing through the minds of investors and are worthy of comment.
First, the NASQAQ Composite measures all domestic and international common stocks that trade on the NASDAQ exchange, commonly referred to as the OTC market. This index has over 3000 companies including, you guessed it, the Magnificent Seven which we have commented on previously.
A correction is defined as a 10% DECLINE from peak. In this case, the NASDAQ peaked at 20204 on December 16th, 2024 amidst the sunshine and happiness that the election was over. A numbers guy like me likes that kind of rhythmic number, 20204, much like I enjoy Fibonacci sequences. But I don’t “like” corrections even though they tend to happen frequently in the market. I’ve learned to manage them and keep them in perspective.
I would be remiss if I failed to mention that the S&P 500 has NOT entered correction mode, nor has the Dow Jones Industrial Average (DJIA). These two indices are off 6.3% and 5.6% respectively, as of mid-morning on 3/4/25. But the NASDAQ has been the darling over the past 25 months garnering all the attention and a ton of new capital from investors chasing performance. Never a good idea to chase performance because it can and does turn quickly.
Some have argued that the market is in a “rotational” mode, shifting from former winners to other stocks that have lagged. There is some credence to this claim as evidenced by the more resilient S&P and DJIA performance. My view on the correction/rotation is that we need to have our antennae up, not our heads in the sand. In six months, we will know if the market is undergoing rotation. Remember, markets predict what may happen…and then it happens.
What’s next? Nobody knows with any certainty. Keep an eye on bond prices and interest rates, which have been moving favorably since mid-January. And acknowledge that we just experienced a great quarter for corporate earnings (up 18% year-over-year), the best quarter since Q4, 2021. Interest rates and earnings matter, more than sentiment, in the longer term. This is the most valuable point to bear in mind.
Last week, I read a research report classifying this market as “near term choppy; long term positive”. This morning, when I offered some perspective on the markets to a client, she shared another observation: “It is like turnpike construction signs – ‘Sorry for the temporary inconvenience as we make long term improvements’.” If you have ever been stuck on the Pennsylvania Turnpike, you certainly understand this message. This wise observation may provide you with a smarter way to navigate this correction.
Ralph McDevittMarch 4, 2025
There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing materials are accurate or complete. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary.
Any opinions are those of Ralph McDevitt and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not indicative of future results. Raymond James & Associates, Inc., member New York Stock Exchange/SIPC.
