Renewed fears of a trade war with China triggered a significant decline in most markets.  On Friday the media emphasized the immense 2.7% daily drop in the S&P 500.  But noise (and media distortions) can be smoothed out by comparing daily or even weekly closing prices, rather than focusing on intraday highs and lows.  From that perspective, the S&P 500 has dropped less than 2.5% from its recent closing high.  On another positive note, Friday’s close held above its 50 day moving average.

Markets have been frothy for months, so a pullback is warranted.  How low will it go?  My assessment is that a decline is likely to be contained.

Note the below chart, over the past two years the S&P 500 (represented by SPY) has rarely dropped below the indicated weekly average.  The exceptions were Nov 2023 when 10 Year Treasury spiked to 5% and April 2025 during Tariff Liberation Day.  Assuming we’re experiencing nothing more than a much needed correction, and the indicated weekly average holds, then the S&P 500 would drop by about 8.4% from its recent closing high. 

In recent months I’ve been building cash reserves for just such an event, so I’d consider a pullback as a buying opportunity.  Keep in mind: productivity is increasing, Oil is below $60/barrel, and 10 Year Treasury is nearly 4% … all good things for corporate profits.

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