The Nasdaq Composite is in correction territory. Is the S&P 500 next?
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!
The post The Nasdaq Composite is in correction territory. Is the S&P 500 next? appeared first on The Motley Fool UK.
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The Motley Fool UK has recommended Microsoft Corp. Cliff D’Arcy has an economic interest in Microsoft Corp shares. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
