Is this the bottom?

This is a segment from the Forward Guidance newsletter. To read full editions, subscribe.

We hope you got some rest over the weekend, because US equities are already off to another tumultuous start this week. 

After entering a correction last week, but then hitting a year-to-date high on Friday, the S&P 500 whipsawed today. At 2:30 pm ET it had managed to get back into the green, trading 1% higher. 

The Nasdaq Composite was also faring pretty well, trading 0.8% higher at that time. 

With recession fears mounting (and signals flashing), it begs the question: Have US stocks bottomed? 

The data (mostly) says no. Let’s take a look: 

The VIX is hovering around 21

Any value at or above 27.3 (one standard deviation above the long-running average) indicates heightened volatility. Generally, stocks perform well after volatility spikes. 

In mid-December, the VIX hit 27.6 after the Fed cut interest rates by 25 basis points. A week later, the S&P 500 had gained almost 3%. Volatility today is hovering around 19, but a bigger selloff in Big Tech and/or disappointing inflation data could send the VIX higher. 

We actually saw almost this exact scenario play out last week. The VIX hit 27.9 on Monday afternoon, and then the S&P 500 corrected later in the week. 

The volatility indicator is still hovering higher than its long-running average (19.5). But it’s going to have to remain elevated for a lot longer (think months) for this to really signal a low for stocks. 

The S&P 500 is trading 19.9x forward 12-month earnings estimates

In other words, the S&P 500 today is trading around 20x the projected earnings of its companies in the next year. 

For context, pre-2008 crash, the forward P/E for the S&P 500 was around 15x. During the crisis, it had dipped to around 10-12x. In 2022, when recession fears were on the rise, the S&P 500 was trading about 15x forward earnings estimates. 

So we’re still in OK territory here. Or, at the very least, the market has priced in a slowdown, to some extent. This was the case during the 2020 recession because earnings estimates decreased so much when the pandemic hit. 

On the other hand, we know consumers are worried. Consumer sentiment fell 11% in March and is down 22% since December, per University of Michigan data. 

I haven’t heard much talk of it recently, but perhaps we are inching back toward “vibe-cession” territory, à la 2022.

While I’ll never be the one to tell you when it’s time to buy stocks, I feel confident in saying you should not expect the Fed to come in and save the day — at least not this week. The March Federal Open Market Committee (FOMC) meeting kicks off on Tuesday, and central bankers are overwhelmingly expected to hold interest rates steady. 

The question thus remains: How long will this pause last? And, relatedly: How low will stocks have to go for Powell to step in? We know Trump isn’t planning any bailouts. 

Come talk markets with us in person this week at the Digital Asset Summit in NYC.

Get the news in your inbox. Explore Blockworks newsletters:

• Blockworks Daily: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.
• Empire: Start your morning with the top news and analysis to inform your day in crypto.
• Forward Guidance: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.
• 0xResearch: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.
• Lightspeed: Built for Solana investors, developers and community members. The latest from one of crypto’s hottest networks.
• The Drop: For crypto collectors and traders, covering apps, games, memes and more.