Is the US stock correction over?
That’s the question for everyone with nothing better to ponder in their spare time than the near-term fate of stakes in corporate America.
Wall Street managed to claw back a meaningful portion of last week’s losses on Friday, but the S&P nevertheless heads into the new week down ~8% from record highs, and there’s no indication whatever that the proximate cause of stocks’ consternation (policy uncertainty in Washington) will resolve anytime soon.
The March FOMC meeting’s likely to reflect the same lack of clarity on trade policy that’s driving equities (and bond yields) lower, and more tariffs loom on April 2.
But for what it’s worth, the table below gives you some perspective on historical corrections in the context of the bank’s indicative metrics (the pseudo-famous “Bull & Bear Indicator” and a breadth rule), fund flows, junk spreads and responses to their monthly fund manager survey, the new installment of which is due Tuesday.
As you can see, the average correction looking back more than a quarter century’s 14.3%. For those of you too young to remember the GFC, do take a moment to marvel at the magnitude of what you missed: A 57% S&P 500 drawdown, which seems unthinkable in the post-Lehman era of heavy-handed central bank intervention.
The key indicator to watch in the new version of BofA’s fund manager poll is the cash level, which triggered a contrarian sell signal late last year.
Last month, before the bottom fell out for stocks, self-reported cash levels ticked a 15-year low at just 3.5% which I called a “screaming” sell signal on February 18. The correction started the very next day.
In order to get back to a “buy” signal, that metric would need to jump all the way to 5%, unlikely in this month’s poll, but BofA’s Michael Hartnett said that if cash levels “rise by 60bps in 1-2 months” (i.e., make it back above the 4% threshold), that too would be a green light.
“If the March Global FMS shows cash levels up from 3.5% to >4.1%, that would end the ‘sell signal’ for risk and indicate the bulk of the correction is done,” he added.
If you ask Hartnett, though, there’s probably a little more to go before the all-clear. “Bottom line: Up-in-stocks, up-in-yields, up-in-dollar positioning is painfully up-in-smoke thus far in 2025, but sentiment, positioning and price signals the equity correction is not quite over,” he wrote. “We say buy SPX at 5300 once BofA FMS cash surges above 4%, HY spreads approach 400bps and equity outflows accelerate.”
The correction was triggered by tariff / trade war fears. And any relaxation of those fears could end the correction. But it’s not this correction I fear.
The repercussions of the Trump/Musk cuts (in jobs, in services, in soft diplomacy, in every aspect of governing) are not yet being felt in our economy, so they’re not being responded to in our markets. We currently have a trade correction, and before it comes back we could fall into the manufactured Trump recession.
For that is the goal. In H’s weekly yesterday, Collective Denial, he pointed out that the current administration’s actions are hard to understand as an attempt to fix things. Of course they are hard, because Trump truly wants to break things. He has promised many things, many ridiculed, but last July in particular he promised that people won’t “have to vote again” if he’s elected, because he’ll have it “fixed so good”.
Break everything. Trigger protests (from all the breaking). Declare martial law, and boom it’ll be fixed so good that we don’t have to have midterm elections, let alone another presidential one. Round up those pesky protesters and put them in prison camps while you’re at it. This all seemed too extremist a viewpoint to most of us last summer to even suggest this path might be real (e.g. Judge Luttig’s “clear and present danger” warning). But inject one Musk into things, let him know that he has free reign to do the actual breaking (Trump is his get out of jail free card), and boom let’s get things ripped up as fast as we can. This is the only way to make sense of what Trump 2.0 is setting up.
I’m not alone. Senator Whitehouse posted his take on Trump’s Social Security takedown on Bluesky earlier today ( https://bsky.app/profile/whitehouse.senate.gov/post/3lkiniky7mc2m ). TL;DR – Disrupt benefits and service, send in private equity / tech bros to fix it, and boom, Social Security is privatized. That’s just one more aspect of the breaking that’s going on… the same is going on everywhere all at once.
It’s more than a recession we face. America’s first Dictator is consolidating power very quickly. A simple recession and bear market for stocks would be a true soft landing for Trump 2.0. I fear the hard landing.