The S&P 500 fell below its 200-day moving average (DMA) but bounced back above it on Friday, signaling support from institutional investors. The last two times the index tested this level were August 9, 2024, and November 3, 2023. It’s crucial that the S&P holds this key support level, or the market could face more significant challenges. Uncertainty is the market’s enemy, and escalating trade wars and tariffs could lead to slower growth and rising inflation—potentially resulting in stagflation. Tariffs will likely drive up costs across all goods and services, further fueling inflation expectations, which could ultimately hurt corporate earnings. Playing defense may be the best strategy to minimize losses in a bear market.
Many stock charts have broken down, and they will take time to repair. According to Investor’s Business Daily (IBD), we need a Follow Through Day (FTD) before considering new buys. An FTD occurs when the market rallies more than 1% on higher volume, four days after an up day, making Wednesday the earliest potential day to buy. However, I don’t see many stocks in favorable buying zones besides defensive stocks, which isn’t a bullish sign. I moved to all-cash (defensive) on February 21, 2025, and will wait for an FTD before re-entering the market.
On the global stage, Trump recently criticized Europe and Germany for not investing enough in defense and suggested the U.S. might pull out of NATO, leaving Europe to fend for itself. The European Central Bank (ECB) can’t monetize debt through asset purchases while inflation remains above target. Germany will likely need to tap into global credit markets, increasing competition for U.S. Treasuries, especially now that it may need to offer higher yields to attract investors. This dynamic caused a 3.5% drop in the dollar last week, as German yields surged due to increased government borrowing to finance military support for Ukraine. The higher yields on German bonds also led the Euro to rise 4.4% as investors sought higher returns in European currencies.
On Friday, the Atlanta Fed’s GDP growth estimate plummeted from 2.3% to a negative 1.5%, signaling the possibility of a recession that may have begun weeks before Trump took office. Consumer spending is declining, and the savings rate is increasing. In times like this, the risk isn’t worth the potential reward, so it’s better to step aside, wait for a solid market bottom, and watch for stocks to break out from sound bases.
Sin will have no dominion over you, since you are not under law but under grace. Romans 6:14
If you know anyone who would like to receive these Updates or invest in my Fund, please Email or call me.
Dexter Lyons, Portfolio Manager
337-983-0676 Dexter@ChristianMoneyBlog.net
Active Risk Management, CANSLIM Investing
ChristianMoneyBlog.net