The stock market is bleeding, but Michael Hartnett from BofA says it’s just a technical correction, not the start of a bear market. The S&P 500 has dropped 10% since February, and the Nasdaq 100 is down 13%, but Hartnett believes this will force policy intervention before things get worse. He is watching for the S&P 500 to hit 5,300 points, another 4% decline, before calling a bottom.

“We say this is a correction, not a bear market in US stocks,” Hartnett wrote. “Since equity bear threatens recession, fresh declines in stock prices will provoke flip in trade and monetary policy.”

He wants to see stock outflows accelerate, fund managers holding over 4% cash, and high-yield spreads hitting 400 basis points before he moves in. Until then, he’s keeping an eye on how far the market dips.

BofA considers Trump’s trade war threats and market reactions

The sell-off started when Donald Trump’s tariff policies raised fears of a global trade war. Investors are worried his economic decisions could push the U.S. into a recession.

Inflation is cooling, but Wall Street is watching the Federal Reserve to see if it steps in. Right now, swaps traders aren’t expecting a rate cut until June, but the next Fed meeting could change that.

Treasury yields are moving. At 6 a.m. ET on Friday, the 10-year Treasury yield rose 2 basis points to 4.299%, while the 2-year Treasury yield climbed to 3.973%.

One basis point is 0.01%, and bond prices move opposite to yields. Investors are waiting for the University of Michigan consumer sentiment index, which will give an outlook on economic confidence and personal finances.

Inflation data is mixed. The Producer Price Index (PPI) was flat for February after jumping 0.6% in January. The Consumer Price Index (CPI) rose 0.2% month-over-month and 2.8% annually, softer than expected. This should have eased some concerns, but Trump’s latest comments on tariffs have kept markets on edge.

“I’m not going to bend at all,” Trump said during an Oval Office meeting with NATO Secretary General Mark Rutte. “We’ve been ripped off for years, and we’re not going to be ripped off anymore.”

He’s also threatening a 200% tariff on EU alcoholic products in response to Europe lifting its suspension on American whiskey tariffs. This could push up liquor prices and hit U.S. businesses exporting to the EU.

Dow Theory signals deeper market trouble

A century-old stock market indicator is flashing a warning. Dow Theory says that when transport stocks and industrial stocks fall together, it signals a deeper market downturn.

Right now, the Dow Jones Transportation Average has dropped 19% since November, close to bear market levels, while the Dow Jones Industrial Average is down 9.3% from its December peak.

“As a risk barometer check, that’s not a great backdrop for the overall market,” said Todd Sohn, managing director at Strategas Securities. The sell-off is hitting homebuilders, chipmakers, and industrial stocks, showing widespread weakness.

Big companies are cutting forecasts. Delta Air Lines slashed its profit outlook in half, and American Airlines expects a first-quarter loss twice as big as its previous estimate.

Retailers Dick’s Sporting Goods and Kohl’s reported weak sales expectations, signaling that consumers are pulling back on spending.

“The animal spirits created after the presidential election appear to have given way to increased pessimism about the impact tariffs could have on inflation and economic activity in the US,” said Lee Klaskow, senior analyst at Bloomberg Intelligence. He warned that a slowing economy hurts freight demand and could drag markets lower.

Some analysts say the Dow Theory is outdated because the economy today is driven more by tech and services than manufacturing. But the fact that transport stocks are on track for their worst weekly decline since September 2022 is enough to make investors nervous.

Technical analysts are seeing sell signals. Adam Turnquist, chief technical strategist at LPL Financial, said that the Dow Jones Transportation Average has fallen below its 2024 lows, a critical level for market technicians.

He also pointed out that the Dow Jones Industrial Average has broken its January pullback lows, confirming that the overall trend is down.

“To make matters worse, its Dow Theory cousin — the Dow Jones Industrial Average — has also rolled over and violated the pullback lows from January, checking the box for a sell signal as the averages confirm the primary trend of the market is no longer higher,” Turnquist said.

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