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Market Recap:
In March, the S&P 500 declined by 5.8%. Although the market saw a rebound in mid-March amidst extremely bearish sentiment, risk appetite shifted back to the downside last week after President Trump unexpectedly announced a 25% tariff increase on automakers, along with a broader reciprocal tariff package expected to be announced today aka “Liberation Day.”
Risk-off sentiment remains strong. The defensive sectors generally outperformed cyclical ones. Defensive sectors like Energy and Communication Services ex-FANG+ (i.e., telecoms) stood out and provided support during the market volatility. With rising tariff risks and weakening consumer confidence, investors favored these more traditional industries. YTD, Energy and Communication Services ex-FANG+ are also the two best-performing sectors, with absolute returns of 9.3% and 13.8%, respectively.
Big tech remains under heavy pressure. The FANG+ index fell 9.7% in March, with META -8.89% and NVDA -7.25% leading the declines—down 13.7% and 13.2%, respectively. Tesla, which had been down nearly 50% since mid-January, appears to have stabilized, rebounding nearly 17% since its recent low on March 10. Given its high domestic production rate, Tesla is among the least impacted automakers under the newly announced tariffs. Overall, FANG+ and broader tech weakness dragged down the broader market in Q1. However, according to Mark’s technical work, this trend may exhaust in the next two weeks or so. Fundamentally, tech earnings revisions have not deteriorated to the same extent as price performance. Hence, tech—especially big tech—may now be more attractive in terms of valuations.
April is shaping up to be a critical month. First, today (April 2) marks the announcement of reciprocal tariffs, which will likely introduce volatility. However, based on our analysis, we see three reasons why the equity market could find a bottom around mid-April:
1. Historical trade war parallels:
During the 2018 trade war, the market bottomed shortly after tariff announcements. We believe 2018 serves as a useful reference. Back then, the market declined after Trump announced tariffs on China but rebounded after China retaliated, even though both sides continued to escalate threats and expand tariff scopes. Markets ultimately trended choppy but higher. Similar to 2018, both 2017 and 2024 had strong prior-year returns, albeit for different reasons (2017 driven by tax cuts). A possible roadmap this time may be: Trump announces tariff hikes → major trade partners retaliate → both sides engage in tit-for-tat rhetoric → rumors of negotiations emerge → some kind of agreement is reached. As Tom and Mark often emphasize, markets rarely bottom on good news—they typically bottom amid bad news. If further negative tariff headlines fail to drive equities lower, then this correction phase is likely nearing its end.
2. April 15 Tax Day:
Besides April 2, another important date is April 15—Tax Day. Our past research shows that following strong returns in the previous year, the market tends to sell off into Tax Day, likely due to investors liquidating positions to cover tax payments. Furthermore, whether tax collections meet expectations will be key. If collections disappoint, the projected U.S. government default timeline could move forward. While this isn’t a positive development, it may help shift the administration’s focus from tariffs to the fiscal budget.
3. Historical seasonality suggests a bottom around April 10–15:
As the chart below shows, in the first year of a presidential term, markets typically decline in February, rebound slightly in March, and then sell off again into early April before finding a bottom. In 2025, the cycle appears delayed by about a week compared to historical averages, but the trend is largely similar. If this pattern plays out, we may see a bottom form around mid-April.
Sector Ratings:
Heading into April, neither Tom nor Mark made any changes to their sector ratings. We avoid frequent adjustments to our strategic views in the absence of greater visibility. Overall, we still believe investors should stay on target, even amid ongoing uncertainty.
Within the 11 GICS Level 1 sectors, Tom and Mark share the same view on 5:
• Overweight by both: Consumer Discretionary, Industrials, Technology, Financials
• Underweight by both: Consumer Staples
For the remaining 6 sectors, there are no full disagreements (i.e., no sector rated Overweight by one and Underweight by the other):
• Communication Services and Real Estate: Overweight by Tom, Neutral by Mark
• Energy and Materials: Neutral by Tom, Underweight by Mark
• Healthcare and Utilities: Neutral by Tom, Overweight by Mark
Tactical Ratings:
While our strategic ratings remain unchanged, recent market turbulence has led us to make some tactical adjustments.
Energy showed the most significant improvement, jumping from 10th to 1st in our latest tactical metrics. This rise is primarily driven by Energy’s strong relative performance during the recent risk-off environment. In addition to trend strength, Energy ranks second in DQM due to its relatively cheap valuation. However, we emphasize that while we are tactically increasing our weighting in Energy, our broader view on Energy remains Neutral (per Tom) and Negative (per Mark). On the demand side, global crude consumption remains soft—particularly the China recovery story hasn’t played out yet—while U.S. production continues to ramp up alongside OPEC+ supply. We believe crude prices will likely stay suppressed, so this tactical shift does not signal a long-term change in our view.
Another notable change is the drop in Technology’s ranking. Based on the pure trend score, Tech is now the lowest among the 11 sectors. The sector—especially semiconductors—has faced significant pressure amid recent market turbulence. That said, Tech still ranks 3rd in DQM and 2nd in our EPS model. Fundamentally, broader tech remains the powerhouse of the U.S. economy. Sector earnings have been resilient. Therefore, from a longer term perspective, the recent correction may have made Tech even more attractive.
Real Estate also saw a meaningful shift. While it hasn’t experienced the same magnitude of drawdown as big tech, it ranks at the bottom in both DQM and EPS models, leading to a drop in its tactical trend score.
Outside of these three sectors, most others remained relatively stable. Based on the latest rankings, we are tactically increasing weights in Energy, Utilities, and Financials by 2%, while reducing weights in Materials, Real Estate, and Consumer Discretionary by 2%.
Compared to last month, the largest shift was a +4.2% tactical increase in Energy, driven by short-term trend improvement. Meanwhile, we reduced Technology by 2.6% and Real Estate by 1.9%. For Tech in particular, we do expect to restore the overweight once the sector starts to bottom—though this may take a few more weeks. Other sector adjustments are relatively minor and based on relative performance during March.
Relative to S&P 500 sector weights:
Our most overweight sectors currently are Financials (+2.4%), followed by Energy and Utilities (both +1.9%). While we’ve reduced Technology, we still maintain a +0.7% overweight relative to the index.
On the underweight side, our largest underweight is Consumer Staples (-2.3%). Given the weak short-term momentum in Materials (-1.7%) and Real Estate (-1.9%), we currently recommend no exposure to these sectors. Our Consumer Discretionary underweight remains little changed from last month at -1.5%.
ETF Picks:
In March, 4 out of our 5 ETF picks outperformed the S&P 500.
The best performer was IAK -1.42% , which held up well during the selloff and gained 0.6%—outperforming the S&P 500 by 4.7%. Due to its strength, we are keeping it in our April ETF picks.
We are replacing the other four—IHI -2.57% , IYF -5.73% , CIBR -5.35% , and DRGO—with IHF 1.57% , USMV 0.72% , MLPA -3.60% , and SCHH -3.10% . As you can see, this new ETF lineup is relatively conservative and defensive. This reflects both technical strength during recent market turbulence and the expectation for somewhat volatility post-tariff announcements (especially with potential retaliatory measures and continued back-and-forth threats). However, much like our Energy overweight, we view this defensive shift as tactical and temporary.
Updated Five ETF Picks:
• iShares U.S. Healthcare Providers ETF (IHF 1.57% )
• iShares U.S. Insurance ETF (IAK -1.42% )
• Global X MLP ETF (MLPA -3.60% )
• Schwab U.S. REIT ETF (SCHH -3.10% )
• iShares MSCI USA Min Vol Factor ETF (USMV 0.72% )
