U.S. stock markets have experienced high volatility since the beginning of this year due to uncertainty surrounding monetary, fiscal, and trade policies implemented by U.S. authorities. The VIX fear and volatility index has fluctuated between 15 and 22 points since the start of the year, indicating caution and uncertainty among investors in U.S. equities.
Performance of U.S. Stock Indices Since the Beginning of the Year
U.S. stock indices have shown mixed performance year-to-date:
- The S&P 500 declined by 0.34%.
- The Nasdaq 100 dropped by 2%.
- The Dow Jones rose by 2%.
- The Russell 2000 (small and mid-cap companies) fell by 4%.
Outperformance of European and Chinese Stocks
On a global level, Chinese and European stock indices have outperformed their U.S. counterparts:
- The Hang Seng Index in China surged by 18% since the start of the year, reaching its highest level in three years.
- The German DAX rose by 14%, while the French CAC 40 increased by 10%, the UK’s FTSE 100 climbed by 7%, and the STOXX 600 gained 10%.
- This strong performance in European and Chinese markets suggests a shift in investor preference away from U.S. equities.
Challenges and Risks Facing U.S. Stocks
- Economic Risks
- Weak U.S. economic indicators, including a decline in existing, new, and pending home sales.
- A sharp decline in consumer confidence, marking the largest drop in four years.
- The services PMI contracted to 49.7 points, its lowest level in two years.
- An inverted yield curve between 3-month U.S. Treasury yields (4.31%) and 10-year Treasury yields (4.28%), which could signal a potential recession.
- Volatility in the Bond Market
- The MOVE index, which tracks bond market volatility, has surged by 16% from its February 19 low, reflecting instability in the fixed-income market.
- High Stock Valuations
Â
- Trade Tensions
- The Trump administration has threatened to impose a 25% tariff on imports from Mexico and Canada starting March 4.
- Additional tariffs of 10% on China are set to take effect on the same date.
- A 25% tariff on European products has also been proposed.
Factors Supporting U.S. Markets
- Positive Corporate Earnings
- Major U.S. banks have reported earnings that exceeded analysts’ expectations.
- Strong Demand for AI and Semiconductors
- Nvidia reported Q4 revenue of $39.3 billion, up 78% year-over-year, surpassing analyst estimates.
- The company projected Q1 revenue to reach $43 billion, above market expectations of $42 billion.
- Data center sales hit a record $35.6 billion in Q4.
- Awaiting Key Inflation Data
- Markets are closely watching the release of the Core Personal Consumption Expenditures (PCE) Price Index, which excludes food and energy and is the Federal Reserve’s preferred inflation gauge.
- Forecasts suggest the index will decline to 2.6%, down from the previous reading of 2.8%.
Nasdaq 100 Technical Analysis
- The Nasdaq 100 reached an all-time high of 22,223 points on February 19, 2025, before declining by approximately 8% to a low of 20,541 points on February 27.
- The index broke below its 50-day and 100-day moving averages and fell under the psychological level of 21,000 points.
- The next major support level is the 200-day moving average at 20,187 points.
- The index faced significant pressure from the Super 7 stocks, contributing to its sharp decline.
Technical Momentum Indicators
- MACD Indicator: A bearish crossover has formed between the MACD line (blue) and the signal line (orange), reinforcing the negative trend.
- RSI Indicator: Currently at 32 points, indicating negative momentum for the Nasdaq 100.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice. All trading involves risk.
