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Technical Analysis Take: What We Are Watching
After five consecutive weeks of selling pressure, buyers stepped back into the market last week, lifting the S&P 500 above key support from the November lows at 6,522. While this is a constructive development, the 200-day moving average (dma) at 6,644 looms as the next critical test for bulls. A sustained move above this level would reverse the short-term downtrend that has been in place since February and increase confidence that the pullback has run its course.
Beyond price action, we are also watching for cyclical sectors to reclaim leadership from defensives and for market breadth to expand toward bullish territory, both important signals of improving risk appetite. Failure at the 200- dma, however, would raise the likelihood of further downside risk, potentially toward support near the February 2025 highs at 6,144. In that scenario, we would want to see clearer signs of capitulation, including more deeply oversold conditions and investor positioning consistent with historical inflection points, evidence that has thus far been largely absent.
Beyond equities, macro conditions remain a key constraint on the market’s ability to regain momentum. The front end of the Treasury curve points to the risk of a higher-for-longer monetary policy backdrop, while the technical setup for longer-dated yields suggests there is still upside risk. At the same time, oil market volatility remains elevated, Brent crude has yet to decisively break below meaningful support, and breakeven inflation rates are beginning to price in some stagflation concerns.
Against this more challenging macro and technical backdrop, it is important to keep recent price action in perspective. Drawdowns are not anomalies in bull markets but a normal and recurring feature of market behavior. Outside of periods when equities are making new all-time highs, the market is almost always experiencing some degree of pullback. Since 1950, on a calendar year basis, the S&P 500 has spent nearly 70% of all trading days in a drawdown of up to 5%, and roughly 18% of trading days in the 5% to 10% range. More severe drawdowns are rare, with 15% or larger pullbacks occurring in only about 6% of trading days. Rather than signaling the end of a bull market cycle, these bouts of volatility have often created opportunities for investors, particularly when the longerterm uptrend for the S&P 500 remains intact, as it is now.
Conclusion
March’s volatility has been uncomfortable but not unusual. While stocks have faced a challenging mix of geopolitical risk, higher oil prices, and interest‑rate volatility, history reflects market resilience, especially when economic fundamentals remain intact. The comparison with prior conflicts reinforces that distinction. The 2003 Iraq War illustrates how markets can recover swiftly when earnings are improving, policy is supportive, and oil price spikes are contained.
Earnings continue to provide support for stocks during this volatile period. Consensus expectations for double‑digit S&P 500 EPS growth in 2026 have not only held firm, but they have improved despite recent market stresses, resulting in more reasonable valuations and pointing toward gains for stocks in 2026.
This does not mean risks have disappeared. Further disruption to energy infrastructure or shipping routes could prolong uncertainty and drive market volatility. However, based on historical precedent, the current risk‑reward backdrop over the medium-to-longer term appears favorable.
After five weeks of selling pressure, it was encouraging to see some buyers step in last week, pushing the S&P 500 back above key November support. The next test is a sustained break above the 200‑day average. We’re watching for cyclical leadership, improving breadth, and clearer capitulation signals for a potential attractive opportunity to add equities to move to an overweight position.
Asset Allocation Insights
LPL’s Strategic Tactical Asset Allocation Committee (STAAC) maintains its tactical neutral stance on equities. As the war in Iran continues with an off ramp not yet in view, investors may be well served by bracing for additional volatility. The stock market’s resilient track record during geopolitical crises is reassuring, leaving STAAC to look for opportunities to potentially add equities.
STAAC’s regional preferences across the U.S., developed international, and emerging markets (EM) are aligned with benchmarks. Attractive valuations in non-U.S. equities are offset by upward pressure in the U.S. dollar and dependence on oil and gas through the Strait of Hormuz, although the Committee continues to watch EM closely for potential opportunities after relative calm is restored in the Middle East.
The Committee maintains a slight preference for growth over value and large caps over small caps. In terms of domestic sectors, communication services and industrials remain overweight while the Committee continues to debate technology as a potential upgrade candidate given the still-strong earnings outlook and more attractive valuations.
Within fixed income, the STAAC holds a neutral weight in core bonds, with a slight preference for mortgage-backed securities (MBS) over investment-grade corporates. The Committee believes the risk-reward for core bond sectors (U.S. Treasury, agency MBS, investment-grade corporates) is more attractive than plus sectors. The Committee does not believe adding duration (interest rate sensitivity) at current levels is attractive and remains neutral relative to benchmarks.
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