By Eric Parnell, CFA on April 21, 2025April 21, 2025 “Combien, combien, combien de temps?” –R.E.M., Talk About the Passion, 1983 It has been a difficult stretch for capital markets for a couple of months now. And as we emerge from our Easter/Passover holiday weekend celebrations, investors are left to wonder how much longer will the turbulence that has enveloped capital markets persist as we continue through the spring and into the summer. To help answer this question, let’s begin with our customary look at the benchmark S&P 500 Index. The market has measurably bounced following the staggering post Liberation Day decline. As a result, we now have some clearly defined support levels to mark against as we move into the upcoming trading week. First, a short-term low has been set at 4835 that was set nine trading days ago on April 7. Perhaps more importantly from a long-term technical perspective, the S&P 500 has effectively reclaimed its ultra long-term and still upward sloping (this is important, as it indicates the ultra long-term uptrend remains intact) 400-day moving average (pink line in chart below) and has been holding this support for the last seven trading days now. Not braking again decisively back to the downside will be important to watch in the coming trading days, as it will indicate that the market is maintaining its footing and wants to eventually push back higher. Despite these positives, the market continues to confront numerous challenges in working to collect itself following its recent decline at two months and counting. First, the short-term 20-day moving average (green dashed line in the chart above) has proven stiff resistance dating all the way back to when the market first starting pulling back in mid-February with the last weak failed attempt at a breakout coming on Tuesday and Wednesday of last week. With the 20-day moving average currently at 5453 steadily falling and the 400-day moving average at 5311 and steadily creeping higher, a technical trading battle will soon be joined around the 5320 level on the S&P 500. Technical forces historically favor the longer term trendlines (think aircraft carrier) overpowering the shorter term trendlines (think PT boat), thus supporting the idea of an eventual upside breakout in stocks above the 20-day moving average over the next two weeks, but the variable of unpredictable political and financial headline news flows can bring uncertainty to the final outcome this time around. These levels (4835, 5311, 5320, 5453) will be important to watch closely in the coming days. Let’s dig deeper into the markets for more answers on what to expect. We’ll begin with the disconcerting. While the headline S&P 500 remains in a technical fight, most other major indices underneath the market surface are already broken. For example, the equal weighted S&P 500 Index has been trading below its 400-day moving average for the last ten trading days and has failed on three different attempts to break back out above this key level. It will want to reclaim this support level soon or it will increasingly transition into resistance. Worse yet is the S&P 400 Mid Cap Index, which has been trading well below its 400-day moving average for eleven trading days and now faces resistance at its 20-day moving average that has moved decisively below the 400-day moving average in its own right And in completing the barely good, bad, even worse, and downright ugly cycle, we have the S&P 600 Small Cap Index, which in retrospect foreshadowed the technical brakes we have seen up the size spectrum having fallen below its 400 day moving average all the way back in early March and has repeatedly failed in the seven weeks since to reclaim not only this ultra long-term trendline but even the short-term 20-day moving average. Put simply, this is a U.S. stock market that remains challenged at the surface and downright sick underneath. The good news is that if any index is going to drag the entirety of the U.S. markets back to the upside, it is the headline S&P 500 Index that remains in the fight. This is why it is all the more important that the S&P 500 finds its footing and starts pushing its way back higher in the coming trading days. Let’s look beyond the U.S. stock market for even more answers. Fortunately, many of these readings offer encouragement that the worst may be behind us. First, consider the CBOE Volatility Index, or the VIX, which is a “fear gauge” for capital markets. In short, the higher the VIX, the more afraid are investors. Conversely, the lower the VIX, the less afraid. After peaking at just over 60 (this is a high reading – it’s only been higher three other times in its more than 30 year history (2008, COVID, last August during the yen carry trade unwind)) at the market lows on April 7, the VIX has fallen steadily lower in the eight trading days since, crossing back below 30 in recent days. Still high to be sure, but less than half of the “fear” the market was feeling just over a week ago and trending lower. Another positive sign is coming from the spreads on CCC and lower rated corporate bonds. In 2024 and into early 2025, the additional yield that investors were requiring to own the debt of companies with the highest probability of default had fallen to historically low levels at just over 11%. But since the beginning of March and right around the same time that U.S. small cap stocks were breaking to the downside, CCC and lower spreads started blowing out. By April 7, these spreads had widened to well over 15%. But in the eight trading days since, these spreads have come back in by 80 bps and are trending back lower. An additional reassuring reading from the most speculative areas of the market comes from Bitcoin, arguably the most recognizable from the cryptocurrency set. Not only did Bitcoin find a bottom on the same day as the S&P 500 on April 7, it has been moving more boldly and definitively back to the upside. In the process, it held its 400-day moving average, and subsequently reclaimed its short-term 20-day moving average and medium-term 50-day moving average (blue line below) and is now pressing up against its still upward sloping 200-day moving average (red line below). Why does this possibly matter when it comes to capital markets? Because cryptocurrencies like Bitcoin are instruments driven by high speculation. Thus, the fact that Bitcoin is holding up so well means investor speculative appetite and willingness to take on risk remains alive and well. Let’s finish this set with arguably the most important of them all, which is the the yield on U.S. Treasuries. It was intermediate-term and long-term U.S. Treasury yields surging to the upside that got the executive branch to finally back down on tariffs, and a subsequent return back to earth was necessary in order to restore calm and confidence in recently shaken financial markets. After continuing to stretch higher for a few trading days after the stock market bottom to a high approaching 4.6% on April 11, the 10-Year U.S. Treasury yield fell back to it’s various trendlines between 4.23% and 4.33%. Rates are ticking marginally higher toward 4.35% during the overnight into Monday’s trading, and we will want to watch the direction of yields closely over the coming week for signals of what may ultimately spill over into the stock market for good or for bad. For good? the 10-Year Treasury yield breaks below 4.23%. For bad? the 10-Year starts pushing its way back up toward 4.6% and beyond. Why is this bad? Because the higher the Treasury yield, the less attractively stocks are valued all else equal, thus putting downward pressure on stock prices. Stay tuned. When turning to the fundamentals, we actually find some more surprising good news. We’ll start with the attention grabber on the corporate earnings front. We are now roughly 10% through the first quarter earnings season, and some of the early results have been notable. In addition to reporting yesterday’s news on how companies performed during 2025Q1, companies are updating their outlooks for the remainder of the year incorporating all that they know and are anticipating will come to pass with tariffs and any other recently man made uncertainties. And despite all of the consternation and handwringing, projected corporate earnings for the remainder of the year have been revised meaningfully higher so far, not lower. Now it is important to interject right away that we still have 90% of the companies in the S&P 500 that still need to report in the coming weeks, so the final number could still change quite a bit. Nonetheless, this is a decidedly positive development at least at the start of earnings season. What about the inflation front, which this Chief Market Strategist repeatedly notes is still the #1 downside risk confronting capital markets today. Tariffs are inherently inflationary, but the markets are signaling expectations of something entirely different – fears of a recession with disinflationary/deflationary forces. Overall, the 5-Year Breakeven Inflation Rate that measures average expected inflation over the next five years, continues to drop from over 2.6% just before “Liberation Day” on April 2 to as low as 2.26% and falling during the overnight heading into Monday’s trading. In short, this is a bond market that is signaling that it not only doesn’t think that tariffs are going to stick in any meaningful way AND that all of the damage from the recent tariff rigmarole may be enough to tip the economy into a mild recession. Nonetheless, if inflation expectations are fading, this means the Federal Reserve is gaining increasing flexibility to cut interest rates if needed. And this is the rocket fuel that can eventually put giddy up back into the U.S. stock market. It promises to be another interesting trading week ahead. The good news is that despite the ongoing volatility, a number of factors continue to work in the U.S. stock market’s favor. It may not materialize right away, but the underlying fundamentals remain solid and arguably marginally improving despite any continued market turbulence. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #728048.