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While US stocks closed higher on Friday, leading indices closed in the red for the month. Specifically, the broad-based S&P 500 fell by around 1.45%, while the tech-heavy Nasdaq Index tumbled 4% in February. Here, we’ll discuss what experts say about the outlook for US stocks after a weak start to the year.
After the weakness last month, the S&P 500 is now almost flat for the year. However, March has historically been a good month for US stocks. According to Christopher Mistal, director of research at Stock Trader’s Almanac, “Usually a solid performing month, March has tended to be softer in post-election years as it is the last month of the historically weak Q1.”
March Has Been a Strong Month for US Stocks
Mistal added, “In the recent 21-year period, March has tended to open softly but then suffer weakness through mid-month before rallying to its finish. Post-election year Marchs tend to open well and exhibit strength until just after mid-month before struggling to close out the month.”
Some analysts believe that President Donald Trump would intervene in case US stocks fall sharply. BofA’s Michael Hartnett has termed the possibility “Trump put” – a reference to “Fed put”, wherein the US central bank intervenes to support markets and prevent severe crashes.
According to Hartnett, the closing level for US stocks on November 5 would be the “first strike price of a Trump put, below which investors currently long risk would very much expect and need some verbal support for markets from policymakers.”
Tom Lee, the head of research at Fundstrat Global Advisors, who coined the term “Trump put,” also echoes similar views and says that the “White House wants to avoid Stall Speed in the economy.”
He added, “as this raises recession risk, and would require fiscal stimulus … thus, a White House ‘put’ is still in play before [the] economy hits ‘stall speed.’”
Here, it is worth noting that during his first tenure, Trump put significant emphasis on stock market performance under his watch and frequently tweeted when US stocks hit new milestones.
Economic Data Has Been Mixed
US economic data has been mixed lately, and while January inflation numbers came in line with estimates – albeit still higher than the 2% that the Fed targets – consumer spending fell 0.2% in the month. Consumer spending accounts for over two-thirds of the US economy, and a slowdown in spending could have severe repercussions.
Concerns over a slowdown in consumer spending are not unfounded, and Walmart gave a dismal guidance for this year. More retailers are set to release their earnings this week, which would provide further color on the health of the US consumer.
Commenting on the US economic data, Peter Cardillo, chief market economist at Spartan Capital Securities said, “Spending came in lower than we were looking for… most of it I would attribute to a cooling economy, which presents a dilemma for the Fed in the sense that you still have inflation and you have an economy that is moving lower. If you add them together, that equals stagflation.”
There are fears that Trump’s tariffs and crackdown on illegal immigrants would be inflationary. The Fed has listed them as a headwind and has said that it would be patient with rate cuts.
Many companies have warned of business disruption and higher costs from the tariffs, and escalation in the trade war could negatively impact US stocks. As Sam Stovall, chief investment strategist at CFRA Research, aptly said, “Tariff talk certainly is having a negative effect on the stock market, and it probably will keep a lid on stock market advances until there’s more clarity around that.”
Grantham Warns of a Crash in US Stocks
Meanwhile, some see a massive correction on the cards and Jeremy Grantham, who co-founded investment management firm GMO, said, “I’ve always looked at it from the point of view that the longer and the bigger and the higher it goes, the more exciting and dangerous it will be, and this has moved up the rank of super bubbles.”
Grantham, who has been bearish on markets for quite some time and advised investors to shun US stocks last year, says markets are overvalued by “every measure of traditional value.”
While Grantham correctly predicted the dot com bust and housing crash, his recent predictions – including forecasting a 50% crash in markets in 2023 – haven’t come true. Incidentally, while Grantham has been calling for US stocks to fall, the S&P 500 gained over 20% each in 2023 and 2024.
Warren Buffett Has Been On a Selling Spree
To be sure, Grantham is not the only one warning of a crash in US stocks, and several other experts have voiced such concerns. While Warren Buffett hasn’t explicitly said so, his relentless stock sales are a sign that the legendary investor is not too bullish on markets. Berkshire Hathaway has been a net seller of stocks for nine consecutive quarters and ended 2024 with a record cash pile of $334 billion.
Many observers have expressed concerns over the burgeoning US debt amid a high budget deficit. Fed chair Jerome Powell also called for addressing the situation in an interview last year, terming the federal government’s fiscal policies as “unsustainable.”
“I think the pandemic was a very special event, and it caused the government to really spend to ward off what looked like very severe downside risks. It’s probably time, or past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable fiscal path,” added Powell during the interview with CBS 60 Minutes last year.
Valuations of US Stocks Are Above Historical Averages
A section of the market has also been apprehensive about valuations of US stocks. According to data from FactSet, the S&P 500 currently trades at a forward PE of 21.2x, which is above the five-year average of 19.8x and 10-year average of 18.3x.
To be sure, US stocks have been trading above historical averages for the most part over the last five years. However, markets have continued to inch upwards, and between 2020 and 2024, they closed in the red only in 2022 while rising by double digits in the remaining four years.
For 2025, median forecasts call for low double-digit returns in the S&P 500, which, if achieved, would be quite decent considering the stellar rally in the previous two years.
