Market Bottom in Sight After Q1 Struggles?

The first quarter was a rough one for US investors. US equities have lagged international equities for the first time in years, and the S&P 500 Index is down 4~% while the Nasdaq 100 is down ~7%. Fear and uncertainty about the Trump tariff plan (which will be unveiled soon and go into effect April 2^nd) and high valuations in the tech sector are the culprits for the correction. Bears will tell you that many market uncertainties remain. Conversely, bulls may argue that the correction has already played out, with many tech stocks down 50% or more. Below are five reasons the market has likely bottomed, including:

SPX April Returns When March is Down 3% or More

If history is any guide, stocks are set for a strong April. According to BTIG, stocks have never been lower in April after a 3% or worse drawdown in March post-World War Two. Not only have they never been lower, but stocks have averaged a 5.92% April gain and a 17.95% April-End-of-year gain (far surpassing the average for the S&P during a normal year).

Image Source: BTIG, Bloomberg

The IPO Market is on Fire

For two reasons, the IPO market can be a fantastic gauge of market sentiment. First, the conviction of new companies to go public can signal optimism about the future. Second, when investors buy these stocks, they are willing to take on more risk than simply buying stocks that have been public for a while. CoreWeave (CRWV), a cloud platform used to scale AI applications, gained around 20% on Tuesday. Meanwhile, Newsmax (NMAX) is up more than 10-fold since going public on Monday! Beyond IPOs, Tesla (TSLA), another risk on name, exhibited a character change by making higher highs while the market made lower lows.

Image Source: TradingView

VIX Term Structure Inverting

Typically, longer-term VIX futures are higher than shorter-term VIX futures (contango). However, this signal has inverted (backwardation) signaling extreme levels of fear. This has been a fantastic bottoming signal for markets in the past few years.

Image Source: Cam Hui, stockcharts.com

Notable Insider Buying

Insider buying is one of the best ways to gauge management’s conviction in their own stock. Unlike insider selling, insiders only buy for one reason – to make money. Over the past few weeks, insider purchases have been made in stocks like IonQ (IONQ), Oklo (OKLO), and Reddit (RDDT).

QQQ Bear Trap

On Monday, the Nasdaq 100 Index ETF (QQQ) whooshed below the March lows before reversing higher to create a “hammer candle.” Such a pattern is often a shakeout that turns into a reversal and a market bottom.  

Bottom Line

Despite a challenging first quarter marked by tariff uncertainty and higher valuations, there are several signals, including seasonality, the IPO market, and the VIX, that suggest a market bottom is nearby.

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This article originally published on Zacks Investment Research (zacks.com).

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