S&P 500 Corrections & ETF Trades: Utilities on the Dip By: Christopher Mistal | March 06, 2025 | Email | Print

For those who were unable to attend the member’s only webinar on Wednesday, the slides and video recording are available here (or copy and paste in a new browser window: https://www.stocktradersalmanac.com/LandingPages/webinar-archive.aspx). Jeff kicked off the webinar with a recap of recent market volatility and chop and how it is beginning to increase the odds of our 2025 Annual Forecast Worst Case Scenario. The current market pullback is no longer tracking the more bullish post-election year seasonal patterns. Instead, the market appears to be tacking toward a more challenging Republican post-election year (page 28 of 2025 STA).

 

The potential market correction (a decline of at least 10% from recent highs) that we have been warning of appears to be unfolding now and a more cautious stance is the prudent course of action. Inflation remains a concern, and the economy is flashing some warning signs. The jobs report scheduled to be released tomorrow (March 7) will provide the next reading on employment. The market may tolerate a softer than expected number as it could push the Fed to resume cutting rates sooner, but a significant miss would likely only further exacerbate numerous uncertainties.

 

 

However, at this juncture we are not expecting a full-blown bear market. Market corrections do happen and on average since 1948, only one out of three corrections have become a bear market. The average duration of time between S&P 500 corrections has been 510 days. At S&P 500’s February 19, 2025, closing high, it had been 481 days since the last S&P 500 correction in 2023. 

 

 

In the above table, we have included every S&P 500 bull market, bear market, correction and recession from 1948 to present. Recession dates are from the National Bureau of Economic Research except for 2022. A correction is defined as a decline of at least 10% but no more than 19.9% using the S&P 500’s most recent high close to its low. A bear market is any peak to trough decline that exceeded 20%.

 

Including the current bull market that began on October 12, 2022, for S&P 500, there have been 13 bull markets and 13 bear markets along with 26 previous corrections. The average correction had a 14.1% decline and took on average 132 calendar days. Bull markets average an impressive 177.4% gain over 1863 days. Based upon the average bull market, the current bull is still relatively young and if the current pullback becomes a correction (S&P 500 would need to close below 5529.73) this would be just its second which equals the average number of corrections per bull market.

 

 

At the end of every monthly webinar, we take questions from members and provide answers. Some questions require additional research and/or time to fully answer. One such question was the history of S&P 500 performance following a positive January and a negative February. We had previously presented the data of a positive January followed by a positive February in our February 13 Issue with the conclusion that it was generally a positive for the next 10-months and full-year performance.

 

 

S&P 500 finished February down 1.42%, which does dampen the results when compared to the positive January and February data. In the table above, average full-year gains are cut from 20.45% to just 9.94% and the frequency of gains retreats from 96.9% to 71.4%. Overall, not great but not all that terrible. It is also notable that three of the last four previous post-election years (shaded), finished with a full-year gain. Only 2001 ended with a loss. 

 

 

There are two sectors that begin their seasonally favorable periods in March: High-Tech and Utilities. As we detail in the Stock Trader’s Almanac 2025, on page 94 “Sector Seasonality”, we typically present the trade setups in advance of when the seasonality begins. This year we are going to focus on the Utilities sector as it has held up well during recent weakness and it also appears to be benefiting from the retreat in 10-year Treasury bond yields. Utilities are generally considered a defensive sector and are often a respectable performer during the “Worst Months,” May through October.

 

In the following weekly bar chart of the Utility Sector Index (UTY), seasonal strength (lower pane, shaded in yellow) typically begins following an early or mid-March bottom and usually lasts through early October although the bulk of the move is typically done sometime in late May or early June. Recent volatile trading has impacted the seasonal pattern in the lower pane of the chart. Typically, the pattern is less choppy as the sector does not usually experience major price swings in a year.

 

 

With over $17 billion in assets and ample average daily trading volume, SPDR Utilities (XLU) is our top choice once again to consider holding during Utilities’ seasonally favorable period. It has a gross expense ratio of just 0.08% and a relatively attractive yield of nearly 3%. Top five holdings include: NextEra Energy, Southern Co, Duke Energy, Constellation Energy, and American Electric Power.

 

XLU could be considered on dips with a buy limit of $74.75. This price is just above its low close in January. Based upon its 25-year average return of 8.16% (excluding dividends and trading fees) during its favorable period mid-March to the beginning of October, set an auto-sell price at $88.93. If purchased an initial stop loss of $65.97 is suggested.

 

 

Our favorite ETF to trade Infotech’s seasonal strength from mid-March through the beginning of July is iShares DJ US Tech (IYW). Our existing position was still up 5.9% as of the close on March 5. With tech still struggling to find firm footing, IYW is on Hold.

 

 

Two sector seasonalities are scheduled to end during March. The first is a Computer Tech short trade. We passed on this trade setup earlier this year and do not have a corresponding position. The second sector is Biotech. Sell iShares Biotech (IBB). For tracking purposes, IBB will be closed out of the portfolio using its average price on Friday March 7.

 

Last month’s new trade idea, First Trust Natural Gas (FCG), was added to the portfolio on February 25 when it traded below its buy limit of $24.54. Shares have slipped lower even as natural gas prices have increased. Its decline is most likely because of the decline in crude oil prices and the overlap that exists within the portfolio of companies held in FCG. FCG is on Hold. 

 

Four positions were stopped out over the last four weeks. iShares Bitcoin Trust (IBIT) was stopped out on February 26 resulting in a 10.3% gain. IBIT has rebounded since, but this trade was based upon a seasonal setup and we are going to move on and wait for the next seasonal setup, possibly sometime later this year in Q3 or early Q4.

 

iShares Semiconductor (SOXX) broke down and closed below its stop loss on February 27. We continued to hold SOXX past the end of its seasonally favorable period because of the resilience it was showing, holding support above its stop loss. Unfortunately, that did not work out to our advantage and a 13.4% loss resulted.

 

S&P Oil & Gas Equipment & Services (XES) was stopped out on March 3. The new administration is committed to lowering energy prices, and they have been declining. We are going to move on from XES. SPDR Energy (XLE) remains in the portfolio and is on Hold.

 

The most recent position to be stopped out was SPDR Consumer Discretionary (XLY) on March 4. Excluding any dividends or fees a modest 6.2% gain was logged. Lingering inflation has been a drag on the consumer, but it also appears that the rapid pace of change from the new administration is causing some concerns as well. Consumers appear to be pulling back on purchases and adding to savings. Until that trend reverses, consumer orientated stocks could continue to struggle.

 

On a positive note, December’s trade in United States Copper (CPER) exceeded expectations and traded above $29.94 on March 5 triggering an auto sell and locking in a 15.6% gain. CPER was slightly lower today but remains just under $30. If profits have not been made, it may be wise to consider doing so as recent market volatility could make them vanish quickly.

 

All other positions not previously mentioned are on Hold. Uncertainty is rising and the market is struggling. Historical Republican post-election year Q1 weakness is here. Caution is the prudent course.

 

 

 

As of today’s close all four positions in the Tactical Switching Strategy portfolio are in the red. As a reminder, positions in the Tactical Switching Strategy portfolio are intended to be held until we issue corresponding Seasonal MACD Sell Signals after April 1 for DJIA and S&P 500 and after June 1 for NASDAQ and Russell 2000. For this reason, there are no stop losses associated with these positions. QQQ, IWM, DIA, SPY are on Hold.