A spate of weak economic data in recent weeks suggests the stock market is headed for a correction in the first six months of 2025, according to Trivariate Research. The Dow Jones Industrial Average and Nasdaq Composite fell more than 2% last week, marking their biggest one-week declines of the year. The S & P 500 also pulled back more than 1.5% during that period. Those losses were driven by new U.S. reports that pointed to a slowdown. Consumer sentiment missed estimates as inflation expectations rose. Purchasing manufacturing index figures from S & P Global, meanwhile, pointed to a contraction in the services sector for February. This led to a steep pullback in the U.S. Citigroup Economic Surprise Index, which Trivariate founder Adam Parker highlighted as a stark warning sign for potential turbulence ahead. The index measures the totality of the difference between economic results and forecasts. Parker said the index's Friday reading "was the lowest in a long time" and "perhaps a visible negative sign that policy uncertainties are starting to have a negative impact." "This past week, we think we are starting to see some more broad-based concern about a volatile backdrop," Parker wrote in a Sunday note. "We would take risk cautiously in the coming weeks until we have more certainty, and we reiterate our conclusion from the outlook," which calls for a correction in the first half of the year. A correction is typically defined by a 10% pullback from a recent closing high. In the S & P 500's case, that would be the record close of 6,144.15 set Wednesday. The benchmark on Monday traded about 2% below that level. .SPX YTD mountain SPX year to date Parker opined last month that investors were somewhat overlooking the negative implications that U.S. tariffs on imports could have on the economy and corporate earnings. Recent market moves have done little to deter Parker from diverging from his forecast. "Many of the 'word salad' prognosticators who were cautious the last two years now like U.S. equities and small caps. That's worrisome," Parker's said in his outlook. "Given the market run, we think it is likely the market will correct in the first half of 2025. Our judgment is that the risks are skewed toward the downside for the S & P500 in the first half of the year." "We think investors have too benign of an interpretation of potential new policies and their impact on U.S. earnings," Parker added. Moving forward, Parker suggests investors opt for health care and industrial stocks, while remaining underweight in consumer discretionary stocks. The S & P 500 health care sector is the best performer year to date, up more than 7%, led by gains in CVS Health and Gilead Sciences . Industrials have gained 2%, with Uber Technologies and GE Aerospace outperforming. Consumer discretionary is the biggest year-to-date laggard, losing 3.8%.
