Nearly four decades ago, Warren Buffett advised that astute investors ought to “show caution when others are overly eager and exhibit enthusiasm for investment only when others are wary.”
Buffett executed numerous well-known contrarian bets, including purchasing Goldman Sachs stock in 2008 and acquiring shares of Bank of America in 2011, taking advantage of discounted assets amid widespread fear.
We’re now moving towards a correction.
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On March 10, the Nasdaq Composite fell by 4%, marking its most substantial one-day drop since September 2022. Major technology stocks saw significant declines: Tesla
(
TSLA
)
down 15%, Palantir
(
PLTR
)
down 10% and Nvidia
(
NVDA
)
down 5%.
On March 11, the S&P 500 index finished trading at 5572.07, which represents a decrease of 0.76%. This figure shows a decline of 9.3% since reaching an all-time high of 6,144.15 on February 19. Typically, a market correction is characterized by a fall of around 10%. Year-to-date, this key indicator has dropped by 5.3%.
The selling off began towards the end of February, partially driven by decreased faith in artificial intelligence stocks following underwhelming performance from Nvidia. The introduction of new tariffs by President Donald Trump also contributed to this economic unease.
Connected: Expert predicts AI stocks chosen by Cathie Wood to soar
On March 11, Trump increased the tariffs on Canadian steel and aluminum to 50% from 25%. This was in response to Ontario imposing a tax on electricity exported to the U.S. Following this, Trump stated he would revisit the decision when Ontario withdrew its tax on electricity.
According to reports from Bloomberg News, the White House stated that the 25% tariff will be implemented by March 12. It was also mentioned that both parties have consented to additional negotiations.
At the same time, the White House has suggested the potential for an economic decline. Trump has refrained from stating that a recession will not happen as he works on reshaping the administration.
In February, the U.S. employment landscape did not meet projections as businesses added less positions compared to what was forecasted, meanwhile, the unemployment figure slightly climbed to 4.1%, rising from 4% recorded in the prior period.
How should investors respond during a market downturn?
A lot of individuals failed to anticipate the stock market upturn in 2023 and 2024, particularly since equities were trapped in a severe bear market towards the close of 2022.
The prevailing belief back then was that stock prices would keep dropping due to an unsupportive Federal Reserve and sluggish economic expansion pushing them down. Given the significant decline of the S&P 500 — which fell by 24% from the close of 2021 until the end of September 2022 — few investors felt optimistic about taking a bullish stance.
Nevertheless, Wall Street seasoned analyst Tom Lee stood out as one of the most optimistic prior to the significant upturn in the stock market at that time.
Lee is the co-founder and chief researcher at Fundstrat Global Advisors. With experience dating back to the early 1990s, he has been steering through the complexities of the stock market.
Currently, during the market downturn and with negative sentiment prevailing, Lee stays optimistic and keeps encouraging investors to remain resilient and “stick to their strategy.”
He told CNBC that it’s quite feasible for March, April, and May to turn into some of those significant upswing months where we might see an increase of 10-15%.
Related: Tycoon Stanley Druckenmiller bows out of two technology behemoths
“Make sure not to overlook ‘The 10 Best Days,’ ” Lee highlighted, stressing the importance of these significant trading periods.
He mentioned that last year, the S&P 500 saw an increase of 20 percentage points solely due to its top 10 trading days. If we exclude those days, the index would have only gone up by 4%.
The S&P 500 might hit 7,000 according to analyst Tom Lee.
Lee and his group have consistently promoted an optimistic outlook. In December, he stated that the S&P 500 would hit 7,000 at some point in 2025. The index’s highest closing value stood at 6,144.15 on February 19th.
Mark Newton, who leads Fundstrat’s technical strategy, likewise maintained an upbeat perspective.
“When you remove the impact of technology, the extent of change has turned out to be significantly more positive compared to what we observed in mid-January,” Newton stated.
More Economic Analysis:
- U.S. consumers are facing renewed stagflation concerns.
- Jobs reports provide critical look at economy, could roil markets
- Fed inflation gauge indicates big changes in key economic driver
So indeed, we’ve caused some minor harm over the past several weeks; however, the overall patterns might still be holding strong. Frankly, I believe we’re moving towards a point where solid backing will emerge, allowing us to gradually move upwards.
“About nine times out of ten, when [investors become this fearful], it’s probably nearing the right moment to purchase,” Newton stated additionally.
Related: Seasoned fund manager shares bold prediction for S&P 500 performance
