(Bloomberg) -- The US stock market sent some troubling signals this week as investors’ euphoric post-election vibe slams into a few challenging realities.
The big-tech shares that have powered so much of the gains in equity indexes over the past two years are starting to sputter, with traders scurrying for safety in less risky positions. Concerns about an economic slowdown are intensifying after several soft data readings over the past two weeks. Fears of President Donald Trump’s tariff-heavy trade policies continue to rise. And worries about the ongoing war in Europe erupted Friday after a contentious White House meeting between Trump and Ukrainian President Volodymyr Zelenskiy turned into a shouting match between the two leaders.
It’s the “fog of uncertainty that has investors of all kinds on edge,” said Mark Malek, chief investment officer at Siebert. “The Trump administration has simply not let up on its tariff talk, and the talk that it has given to date has been vague and nebulous.”
With all this up in the air, it’s not entirely surprising that the S&P 500 Index has fallen for two straight weeks and four of the last five. It’s gotten close to erasing all of its gains since the frenzy spurred by Trump’s election. The benchmark ended Election Day, Nov. 5, at 5,782.76, and closed Friday at 5,954.50 after a furious late-session rally. Still, it remains well off the high of 6,144.15 from last week.
The Election Day level is key to traders because if the S&P sinks below that, investors who are “currently long risk would very much expect and need some verbal support for markets from policymakers,” strategists at Bank of America led by Michael Hartnett wrote in a note to clients on Friday.
To get a sense of what traders and investors are watching to gauge whether the selloff is cooling or if there’s a bigger plunge ahead, take a look at the key charts below.
Sinking Sentiment
Investor sentiment has become one of the most important indicators that traders are watching, as the spread between bullish and bearish expectations turned the most negative since 2022 in the week ended Wednesday, according to the latest sentiment survey from the American Association of Individual Investors. Prior to 2022, the last time the indicator was this low was in 2009, around the great financial crisis.
“Very low sentiment readings tend to be a contrarian indicator,” said David Lefkowitz, head of US equities at UBS’ global wealth management arm. “Stocks typically perform well after poor sentiment readings. Not only do returns tend to be higher, but there is also a higher probability of a market gain — a year later stocks are higher 85% of the time.”
Despite the concerns, investors continue to be long stocks, as seen in Bank of America’s global fund manager survey earlier in February. This suggests the overall consensus may still be closer to neutral. As a result, traders will be looking for moves in the sentiment indicator over the coming weeks.
Greener Shores
US stocks are underperforming their global counterparts as the Trump administration ratcheted up the warnings on tariffs. The S&P 500 is up only 1.2% for 2025, while indexes measuring Chinese ADRs and European equities have gained roughly 10% or more, and even the Canadian stock market benchmark is doubling the S&P 500’s performance.
Just this week, Trump said that 25% tariffs on imports from Mexico and Canada will take effect March 4, which is just a few days away. And he added that China may face an additional 10% levy. With that noise showing few signs of abating anytime soon, the divergence between US and non-US equities will be closely watched.
Fleeing Risk
One of the clearest indications of growing nervousness about the economy and tariffs is the evaporating risk appetite. Money has been flowing out of riskier stocks at a rapid pace, with an index of the top seven technology stocks entering correction territory, shares of unprofitable tech companies plunging and those of heavily shorted firms giving up all of their gains from the post-election speculative frenzy.
“The bounce in risk-on factors is not working,” said Dennis DeBusschere of 22V Research. “Markets will keep reacting negatively until the economic risk related to tariffs is behind us.”
Chips Losing Shine
The S&P 500 has been on a blistering run since the start of 2023, adding $18 trillion in value in the process. But one industry that has been at the center of the action hasn’t gotten a commensurate bump in the stock market: semiconductors.
The VanEck Semiconductor exchange-traded fund, which holds chip bellwethers like Nvidia Corp., Applied Materials Inc. and Advanced Micro Devices Inc., has shed 17% from its all-time high in July, leaving it teetering near the brink of a bear market. The fund, which goes by the ticker SMH, broke through its 200-day moving average near $240 and is moving toward $200. A fall to that level would mean further downside for chipmakers and pressure the broader market in light of their hefty S&P 500 weightings, according to John Kolovos, head of technical strategy at Macro Risk Advisors. A jump to $260 would improve the technical outlook, he said.
What’s Next?
Another issue for bulls is that that fewer stocks are hitting fresh highs. Just 8% of S&P 500 shares are notching fresh 52-week highs, down from more than 25% in early November. However, there isn’t a ton of pressure on the downside either, with the just 9% of shares touching three-month lows, well off a peak of 31% during the unwinding of the yen carry trade in early August.
Seasonality
While February was challenging, history suggests the road will be tougher for investors to navigate in March. Looking at post-election years since 1950, March has historically started strong and then weakened as traders grapple with “triple-witching” — the simultaneous expiration of stock options, stock index futures and index options that amplifies volatility — along with portfolio rebalancing that comes at the end of the month and quarter, according to the Stock Trader’s Almanac.
