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A stock market crash is fall of 20%+ from a previous market peak. Meanwhile, a market correction happens when share prices slide 10%+ below their former high. Right now, I’m wondering when the US S&P 500 index will enter the latter category?
US markets leap then lose
After Donald Trump won his second presidential election, US stocks soared. On 4 November 2024, the S&P 500 closed at 5,712.69. It then raced upwards, hitting a record high of 6,147.43 on 19 February, up 7.6%.
The tech-heavy Nasdaq Composite index followed suit. After closing at 18,179.98 on 4 November, it surged to an all-time high of 20,204.58 on 16 December, soaring 11.1% in six weeks.
Both indexes have since retreated from their summits. On Thursday, 6 March, the S&P 500 closed at 5,738.52, down 6.7% from the top. The Nasdaq Composite closed at 18,069.26 on Thursday, losing 10.6% from its high.
What next?
Note that the UK’s FTSE 100 index has done much better lately than its US counterparts. As I write, the Footsie stands at 8,643.04 points, down 3% from its fresh peak of 8,908.82, hit on 3 March.
Hence, while the S&P 500 and Nasdaq Composite have lost all gains made since 4 November, the FTSE 100 is up 5.6% over this period. Inadvertently, it seems that President Trump has made British — rather than US — shares great again.
Despite these pullbacks, the S&P 500 still looks expensive to me. It trades on 23.9 times trailing earnings — pricey in both historical and geographical terms. But unless corporate earnings surge in 2025 (or stock prices slump), this index will continue to appear richly priced for a while.
Will the S&P 500 fall 10%+ from its February peak? For this to occur, it would have to fall below 5,532.69 points, which would involve losing another 205.83 points from here. Given that this requires only a 3.6% decline from its current level, I think it increasingly likely this marker could be breached, possibly before mid-March.
Silicon value
Recently, I’ve been hunting for deep value among the mega-cap US tech stocks known as the Magnificent Seven. My wife and I already own four of these firms, having bought at deep discounts during the market lows of November 2022.
For example, the share price of Microsoft Corp (NASDAQ: MSFT) has fallen far from its summer highs. On Thursday, this stock closed at $396.89. This values this tech behemoth at almost $3trn, making it #2 in the table of largest US-listed companies.
On 5 July 2024, this stock hit a record high of $468.35, but has since dived almost 15.3%. Indeed, it is now within 4.2% of its 52-week low of $381, recorded just three days ago on 4 March. However, it is still up a market-beating 145.7% over five years.
Compared to the rest of the ‘Mag 7’, Microsoft stock looks cheap to me. It trades on under 32 times earnings and offers a modest dividend yield of 0.8% a year. These fundamentals don’t look too wild for a company with a long, storied history of growth.
Of course, I could be wrong, as Bill Gates’ baby faces many obstacles, including federal anti-trust probes and losing customers to smaller, nimbler rivals. But my wife and I aim to hold onto this S&P 500 stock for years!
