Understanding the Current Market Selloff
Recap of Year-to-Date Market Performance
Stocks started 2025 trading higher but have since pulled back significantly. The S&P 500 has declined more than -8% from its all-time high on February 19th, lowering its year-to-date return to -5% (Figure 1). The Nasdaq 100, an index of technology and growth stocks, is down -7% year-to-date, while the small-cap-focused Russell 2000 has fallen -9%. The Magnificent 7, a group that includes Microsoft, Apple, Meta, Alphabet, Amazon, Nvidia, and Tesla, has declined nearly -15%. Given the recent volatility, our team wanted to discuss the current environment and provide a market update. *performance as of 3/11/25
For your convenience, we’ve also provided a PDF copy of the Chart of the Month | Understanding the Current Market Selloff
What’s Behind the Market Selloff?
Several factors are contributing to the current market selloff. First, momentum stocks that led the 2024 rally are now experiencing a sharp reversal. Figure 2 shows 2024’s top performers have become 2025’s underperformers. Technology stocks, the Magnificent 7, and Large Cap Growth powered last year’s gains, fueled by enthusiasm for the artificial intelligence industry. However, the concentrated rally led to stretched valuations and crowded positioning, particularly among the biggest companies. As those stocks lose momentum, it’s triggering a rapid unwind, with a large amount of capital rotating at once.
Second, investor exposure to the stock market was high entering 2025. Households’ allocation to stocks reached a record high, and institutional investors, such as pension funds, endowments, and insurance companies, increased their leverage and equity exposure last year as stocks traded higher. Now, institutional investors and hedge funds are deleveraging, adding to the selling pressure.
Third, optimism around the Trump administration’s pro-growth policies has given way to concern, with worries that spending cuts and the uncertainty created by tariffs will slow economic growth.
Market Volatility vs. Economic Reality
It’s important to remember that the stock market isn’t the economy, with some data points signaling a different economic reality. The Federal Reserve’s Weekly Economic Index (WEI), which tracks real-time activity using data such as unemployment claims, rail traffic, steel production, and tax withholdings, remains positive (Figure 3). Despite recent stock market volatility, the WEI suggests the broader economy hasn’t felt a significant impact.
In the bond market, high-yield credit spreads, which measure the difference in yield between riskier corporate bonds and U.S. Treasuries, remain near all-time lows (Figure 4). The stability of credit spreads indicates that, so far, the selloff has been largely confined to the stock market. Together, these two data points suggest the recent volatility may be a market-specific adjustment rather than a systemic issue or sign of broader financial strain.
Is This Normal and Can the Market Selloff Continue?
Market volatility can be unsettling, but it’s a normal part of investing. Periods of enthusiasm often lead to recalibration. It’s natural to feel uncertain, but history shows that staying invested through volatility and maintaining a longer-term view is a prudent approach. Since 1928, the S&P 500 has experienced a decline of -5% or more in 91 of the past 98 years. Yet, markets have demonstrated an ability to recover and rewarded patience. By maintaining a diversified portfolio aligned with your long-term goals, we’re positioned to weather the market’s swings.
Disclosure
The information and opinions provided herein are provided as general market commentary only – not financial advice – and are subject to change at any time without notice. This commentary may contain forward-looking statements that are subject to various risks and uncertainties. None of the events or outcomes mentioned here may come to pass, and actual results may differ materially from those expressed or implied in these statements. No mention of a particular security, index, or other instrument in this report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security or index. The report is strictly an informational publication and has been prepared without regard to the particular investments and circumstances of the recipient.
Past performance does not guarantee or indicate future results. Any index performance mentioned is for illustrative purposes only and does not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged, and one cannot invest directly in an index. Index performance does not represent the actual performance that would be achieved by investing in a fund.
See Full Disclosures Page
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Blog Disclosures
This content, which may contain security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own financial advisors as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blogs, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Financial Synergies Wealth Advisors, Inc. employees providing such comments, and should not be regarded as the views of Financial Synergies Wealth Advisors, Inc. or its respective affiliates or as a description of advisory services provided by Financial Synergies Wealth Advisors, Inc. or performance returns of any Financial Synergies Wealth Advisors, Inc. client.
Any opinions expressed herein do not constitute or imply endorsement, sponsorship, or recommendation by Financial Synergies Wealth Advisors, Inc. or its employees. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this website or Blog constitutes investment or financial planning advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. It also should not be construed as an offer soliciting the purchase or sale of any security mentioned. Nor should it be construed as an offer to provide investment advisory services by Financial Synergies Wealth Advisors, Inc.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Synergies Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Any charts provided here or on any related Financial Synergies Wealth Advisors, Inc. personnel content outlets are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts have been obtained from third-party sources and data, and may include those from portfolio securities of funds managed by Financial Synergies Wealth Advisors, Inc. While taken from sources believed to be reliable, Financial Synergies Wealth Advisors, Inc. has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. All content speaks only as of the date indicated.
Financial Synergies Wealth Advisors, Inc. is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Financial Synergies Wealth Advisors, Inc. and its representatives are properly licensed or exempt from licensure. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
See Full Disclosures Page Here
Chart of the Month | Understanding the Current Market Selloff
Understanding the Current Market Selloff
Recap of Year-to-Date Market Performance
Stocks started 2025 trading higher but have since pulled back significantly. The S&P 500 has declined more than -8% from its all-time high on February 19th, lowering its year-to-date return to -5% (Figure 1). The Nasdaq 100, an index of technology and growth stocks, is down -7% year-to-date, while the small-cap-focused Russell 2000 has fallen -9%. The Magnificent 7, a group that includes Microsoft, Apple, Meta, Alphabet, Amazon, Nvidia, and Tesla, has declined nearly -15%. Given the recent volatility, our team wanted to discuss the current environment and provide a market update. *performance as of 3/11/25
For your convenience, we’ve also provided a PDF copy of the Chart of the Month | Understanding the Current Market Selloff
What’s Behind the Market Selloff?
Several factors are contributing to the current market selloff. First, momentum stocks that led the 2024 rally are now experiencing a sharp reversal. Figure 2 shows 2024’s top performers have become 2025’s underperformers. Technology stocks, the Magnificent 7, and Large Cap Growth powered last year’s gains, fueled by enthusiasm for the artificial intelligence industry. However, the concentrated rally led to stretched valuations and crowded positioning, particularly among the biggest companies. As those stocks lose momentum, it’s triggering a rapid unwind, with a large amount of capital rotating at once.
Second, investor exposure to the stock market was high entering 2025. Households’ allocation to stocks reached a record high, and institutional investors, such as pension funds, endowments, and insurance companies, increased their leverage and equity exposure last year as stocks traded higher. Now, institutional investors and hedge funds are deleveraging, adding to the selling pressure.
Third, optimism around the Trump administration’s pro-growth policies has given way to concern, with worries that spending cuts and the uncertainty created by tariffs will slow economic growth.
Market Volatility vs. Economic Reality
It’s important to remember that the stock market isn’t the economy, with some data points signaling a different economic reality. The Federal Reserve’s Weekly Economic Index (WEI), which tracks real-time activity using data such as unemployment claims, rail traffic, steel production, and tax withholdings, remains positive (Figure 3). Despite recent stock market volatility, the WEI suggests the broader economy hasn’t felt a significant impact.
In the bond market, high-yield credit spreads, which measure the difference in yield between riskier corporate bonds and U.S. Treasuries, remain near all-time lows (Figure 4). The stability of credit spreads indicates that, so far, the selloff has been largely confined to the stock market. Together, these two data points suggest the recent volatility may be a market-specific adjustment rather than a systemic issue or sign of broader financial strain.
Is This Normal and Can the Market Selloff Continue?
Market volatility can be unsettling, but it’s a normal part of investing. Periods of enthusiasm often lead to recalibration. It’s natural to feel uncertain, but history shows that staying invested through volatility and maintaining a longer-term view is a prudent approach. Since 1928, the S&P 500 has experienced a decline of -5% or more in 91 of the past 98 years. Yet, markets have demonstrated an ability to recover and rewarded patience. By maintaining a diversified portfolio aligned with your long-term goals, we’re positioned to weather the market’s swings.
Disclosure
The information and opinions provided herein are provided as general market commentary only – not financial advice – and are subject to change at any time without notice. This commentary may contain forward-looking statements that are subject to various risks and uncertainties. None of the events or outcomes mentioned here may come to pass, and actual results may differ materially from those expressed or implied in these statements. No mention of a particular security, index, or other instrument in this report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security or index. The report is strictly an informational publication and has been prepared without regard to the particular investments and circumstances of the recipient.
Past performance does not guarantee or indicate future results. Any index performance mentioned is for illustrative purposes only and does not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged, and one cannot invest directly in an index. Index performance does not represent the actual performance that would be achieved by investing in a fund.
See Full Disclosures Page
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Blog Disclosures
This content, which may contain security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own financial advisors as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blogs, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Financial Synergies Wealth Advisors, Inc. employees providing such comments, and should not be regarded as the views of Financial Synergies Wealth Advisors, Inc. or its respective affiliates or as a description of advisory services provided by Financial Synergies Wealth Advisors, Inc. or performance returns of any Financial Synergies Wealth Advisors, Inc. client.
Any opinions expressed herein do not constitute or imply endorsement, sponsorship, or recommendation by Financial Synergies Wealth Advisors, Inc. or its employees. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this website or Blog constitutes investment or financial planning advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. It also should not be construed as an offer soliciting the purchase or sale of any security mentioned. Nor should it be construed as an offer to provide investment advisory services by Financial Synergies Wealth Advisors, Inc.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Synergies Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Any charts provided here or on any related Financial Synergies Wealth Advisors, Inc. personnel content outlets are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts have been obtained from third-party sources and data, and may include those from portfolio securities of funds managed by Financial Synergies Wealth Advisors, Inc. While taken from sources believed to be reliable, Financial Synergies Wealth Advisors, Inc. has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. All content speaks only as of the date indicated.
Financial Synergies Wealth Advisors, Inc. is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Financial Synergies Wealth Advisors, Inc. and its representatives are properly licensed or exempt from licensure. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
See Full Disclosures Page Here
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