SPY ETF Stutters 1 Month on From Record Highs

As the first quarter of 2025 moves towards a close, the S&P 500 is coming off a month that has moved the index negative on the year. Down 4.39% through March, the index is now down 2.99% through 2025, as concerns surrounding tariffs, and the economy continue to grow.

The SPDR S&P 500 ETF Trust (NYSEARCA: SPY), the market's bellwether exchange-traded fund tracking the broad S&P 500 index, is down a further 0.16% in this morning's pre-market, with recent highs firmly in the rearview.

The SPY has been spending most of it's time this year in a range roughly between $560 and $605, with the correction from recent highs almost a perfect 10%. Zooming out provides perspective: despite the recent turbulence, the ETF still retains a respectable trailing twelve-month total return of nearly 11.8%, a testament to the strength of the rally preceding this consolidation.

🟩 The Bull Case for SPY

• Holding Long-Term Support: SPY is currently contending with its 200-day moving average, a historically significant support zone that could attract buyers.
• Positive Full-Year Outlook: Despite Q1 moderation, consensus forecasts for CY 2025 still point to robust, double-digit earnings growth for S&P 500 companies.
• Strong Q4 Foundation: The powerful earnings performance in Q4 2024 demonstrates underlying corporate resilience.
• Market History: Historically, the S&P 500 has proven resilient, recovering from pullbacks to achieve new highs over the long term.
• Inherent Diversification: SPY offers broad exposure across 500 leading U.S. companies, mitigating single-stock risk.

🟥 The Bear Case for SPY

• Deteriorating Momentum: Recent price action is negative across daily, monthly, and year-to-date timeframes.
• Technical Warning Signs: Trading below the 50-day SMA signals near-term weakness; a break below the 200-day SMA would be a major concern.
• Slowing Growth & Downward Revisions: Q1 2025 earnings and revenue growth estimates are moderating, and have been revised lower, suggesting near-term headwinds.
• Macroeconomic Uncertainty: Persistent inflation, ongoing questions about the path of interest rates, and global geopolitical risks could dampen investor appetite for equities.
• Valuation Concerns: Following the strong rally into early 2025, some market segments may still carry elevated valuations relative to historical norms, potentially limiting upside.

Technical Crossroads: Key Moving Averages in Focus

Technically, the picture for SPY is increasingly complex and warrants careful observation. The ETF's price has decisively dipped below its 50-day simple moving average (SMA), currently estimated around the $588-$590 zone. For chart-focused traders, a sustained break below this widely-watched short-to-medium term trend indicator often flashes a bearish signal, suggesting that downward momentum may have further room to run.

Adding to the intrigue, the current price action finds SPY testing, or hovering just above, its crucial 200-day SMA, situated near the $568-$574 level. This longer-term moving average is frequently viewed as a significant line in the sand for market bulls.

A successful defense of this level could provide a platform for stabilization and a potential rebound, while a convincing breach below it could signal a more profound shift in market sentiment and potentially usher in a deeper correction.

Previous Strength Butts Against Future Uncertainty

The recently concluded fourth quarter earnings season delivered strong results, if not clear guidance, going some way to calming earlier fears of an earnings hit. Blended year-over-year earnings per share (EPS) growth surged impressively, landing between +16.1% and +16.9%, marking the strongest quarterly growth since late 2021. Revenue growth also held firm, increasing by approximately 4.2% to 5.2%.

While a healthy majority (around 76-77%) of companies surpassed EPS expectations, the magnitude of these beats was somewhat less emphatic than historical averages, perhaps offering an early hint of margin pressures.

However, the forward-looking picture for the immediate term appears more subdued. Analyst consensus estimates for the first quarter of 2025 point towards a significant deceleration in growth. Projected year-over-year EPS growth is currently pegged in the +5.9% to +7.1% range, with revenue growth anticipated around +3.7% to +4.2%.

Perhaps more tellingly, these Q1 estimates have faced downward revisions since the quarter began, indicating a potential erosion of confidence among analysts regarding companies' ability to navigate prevailing economic conditions, which may include sticky inflation or the lagged effects of prior monetary tightening. Despite this near-term caution, Wall Street analysts maintain a relatively optimistic outlook for the full calendar year 2025, forecasting double-digit EPS growth between +11.4% and +12.7%.

Achieving these targets, however, will likely depend heavily on the trajectory of inflation, Federal Reserve policy adjustments, and the overall resilience of the U.S. economy.