Much of the ongoing turmoil in US stocks this year is being attributed to Trump’s new tariffs that many believe could push the world’s largest economy into a recession before the end of 2025.
However, a seasoned technical analyst says US stocks would have crashed even if the White House had not announced new tariffs on friends and foes alike.
According to Carter Worth, founder of Worth Charting, “the market was deteriorating well before the actual peak, internally, in terms of constituents.”
While the benchmark S&P 500 index has inched up in recent sessions, it’s still down some 15% versus its year-to-date high in mid-February.
Market’s 2024 gains were highly concentrated
The US stock market had a blockbuster 2024, but its gains last year were far from broad-based.
Instead, they were heavily concentrated in a handful of powerhouse stocks, particularly the AI-focused tech titans known collectively as the “Magnificent 7”.
So, while major indices like the SPX and Nasdaq rallied to record levels, a big bunch of individual names were actually struggling under the surface, argued Carter Worth in his recent report.
More importantly, the market veteran recommended that investors continue to tread with caution as there may still be “more trouble ahead”.
Expectations were unusually high coming into 2025
US stocks were poised for losses also because expectations were sky-high coming into 2025.
Investors were convinced that earnings growth would remain in double-digit percentages this year as well, on the hopes that sectors other than technology will contribute more significantly to the upside in 2025.
Analysts also expected positive earnings growth from nearly 90% of the S&P 500 companies this year, compared to a tad above 70% only in 2024.
According to Adam Turnquist, chief technical strategist at LPL:
“There was a lot of optimism and a lot of good news prices into stocks at the start of the year. We set ourselves up for a pretty high bar.”
Gold price increase signalled trouble for US stocks
In December, the S&P 500’s price-to-book ratio surpassed its dotcom bubble high. Then in March, the Russell 3000’s 150-day MA also fell flat for the first time since early 2023.
Together, what these red flags signalled was a “structural bear market,” added Carter Worth in his latest report.
Finally, the technical analyst dubbed a continued surge in gold prices this year a sign that US stocks were headed for a rough patch even without tariffs.
Macro uncertainty has been driving global investors to gold in recent months, indicating a risk-off mentality that historically hurts stock prices.
“This is a period of uncertainty, of geopolitical risk, of prospective stagnation. That’s not a reason to expand the P/E multiple, it’s a reason to pay less for a stock. The fever is broken,” he concluded.
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