Fidelity's Timmer: S&P 500 Correction May End In July

Fidelity’s director of global macro, Jurrien Timmer, has provided an updated outlook on the stock market following a recent correction in equities. In a post on a social media platform, Timmer shared a chart illustrating the average returns of the S&P 500 during specific years of presidential terms. According to Timmer, the S&P 500 is closely following the historical average of previous presidential cycles, and its current drawdown could conclude around July of this year. He noted that the market is currently in the fifth year of the presidential cycle, which has historically seen a downtrend for the first six months. This suggests a modest but multi-month corrective period.

Timmer also shared a chart tracking 26 different corrections in the S&P 500 dating back to 1906. He observed that the current market dip resembles the correction seen in 2018, implying that the S&P 500 could bottom out around the 4,900 level. Timmer mentioned that the recent reprieve from market volatility allowed the markets to stabilize, but the S&P 500 remains in a 10% correction territory. He compared the current situation to late 2018, which was a 20% correction driven by multiple compression.

The recent pullback in US equities, as noted by Timmer, can be seen as a sign of an aging bull market and a reaction to developments around trade policy. This pullback has led to a decline in the S&P 500 Index from its all-time closing high in mid-February. While some market cycles end around the 30-month mark, history shows that many extend further. Strong earnings performance has supported valuations, with a significant percentage of companies reporting positive earnings.

Timmer’s analysis suggests that the market is currently in a corrective phase, and investors should be prepared for potential volatility. The historical data and presidential cycle analysis provide a framework for understanding the current market conditions, but Timmer cautions against relying too heavily on these indicators. The market’s behavior in the coming months will be crucial in determining whether the current correction will deepen or reverse.