Investors Question Timing as Stock Market Faces Selloff

The stock market experienced a significant selloff on Thursday as investors reacted to the bulls’ attempts to hold the Nasdaq’s 200-day moving average earlier in the week.

The ongoing trade tensions involving the U.S., Canada, Mexico, and China seem to overwhelm Wall Street.

While it remains unclear how President Trump and his administration will navigate these challenges, it is unlikely that they wish to inflict severe damage on the U.S. economy or the stock market.

Nonetheless, the downturn may persist as both institutional and retail investors seek to capitalize on substantial profits amid growing fears on Wall Street.

Understanding the Current Stock Market Selloff

A market correction was anticipated after a boom in artificial intelligence drove massive triple-digit gains for numerous stocks over the past few years.

For instance, Nvidia, emblematic of the AI surge, has soared 380% in the last two years and 1,700% over the last five years. Despite this recent decline, Nvidia shares remain up 21% in the past year.

Both the Nasdaq and the S&P 500 have experienced over 100% increases in the past five years.

In the last 24 months alone, the S&P has risen approximately 44%, while the Nasdaq has jumped 55%.

Image Source: Zacks Investment Research

These staggering gains may lead some investors to lock in profits if they observe their paper profits slipping away.

Investors are likely pondering the right moment to buy amidst this downturn.

Recently, both the Nasdaq and the S&P 500 dipped below their 200-day moving averages for the first time since the fourth quarter of 2023, although the Nasdaq briefly fell below in August 2024 only to quickly rebound.

Currently, both indices are testing their 50-week moving averages.

The stock market has the potential to decrease further to readjust valuations closer to historical norms. The S&P 500 is trading at 20.6 times forward earnings, which is significantly above its 10-year median of 18.1 times.

Many investors speculate that a selloff could revert the market to its late 2021 peaks.

Image Source: Zacks Investment Research

Future market movements remain uncertain, and individuals claiming to foresee exact changes should be approached with caution.

Here is what we understand: the S&P 500 and the Nasdaq have declined from overbought RSI levels at the end of 2024 to some of their most oversold conditions in years.

Market exuberance has diminished. The CNN Fear & Greed Index, often used as a contrarian signal, has plummeted from a Neutral position in mid-February to Extreme Fear (17 out of 100).

Importantly, the earnings growth outlook for the S&P 500 remains strong, bolstered by the updated guidance from major tech companies.

According to recent Zacks data, benchmark earnings are projected to increase by 13.3% in 2025 and 13.7% in 2026, compared to a projected growth of 7.3% in 2024.

Additionally, the Federal Reserve is expected to lower interest rates in 2025, a change that could influence market dynamics.

Ultimately, earnings and interest rates are crucial factors driving the market. This may prompt investors to begin considering beaten-down stocks and ETFs, or at the very least, to prepare for potential opportunities as market corrections continue.

Is It Time to Invest in Tech Stocks and ETFs?

Invesco’s QQQ ETF tracks the Nasdaq-100 Index, offering exposure to major tech players like Apple, Microsoft, and Nvidia.

Investing in QQQ simplifies access to the tech sector without having to select individual stocks. The ETF has also fallen below its 200-day moving average in line with the Nasdaq.

QQQ has forfeited all gains achieved since the Trump election and has recently dipped below its summer highs.

As of Thursday, QQQ is nearing a correction, down roughly 10% from its February peaks. Long-term investors may want to start accumulating shares of QQQ here and consider adding more if prices continue to fall.

Investors looking for individual tech stocks might want to explore options such as Meta and Amazon.