MW Friday's selloff broke something in the stock market. Here's what that means for investors.

By Barbara Kollmeyer

Longview Economics strategist says it's time for caution

Something has shifted in the stock market after Friday's selloff. Longview Economics says it's time to be careful.

Investors who would like to fully focus on the start of earnings season are dealing with a reboot of trade tensions. A fresh China-U.S. spat over shipping is set to take a bite out of stocks at the open.

Trade impacts were all but forgotten, Nohshad Shah, head of fixed income at Citadel told clients. "Downside risks remain present (and underpriced). Friday's news illustrates the vulnerability of equity markets to shocks at these valuations."

Our call of the day suggests something under the surface of the market may have shifted after last week's selloff, with a pullback just getting started. Independent research consultancy Longview Economics' global economist and chief market strategist Chris Watling told clients on Monday that he's cautious where stocks are concerned.

"Despite Trump's 'TACO' [Trump Always Chickens Out] comments over the weekend, there remains a strong possibility that the robust upward momentum in this equity market has been broken for now," Watling wrote in an update.

He said the market showed a vulnerable side that few expected on Friday. "The backdrop for that pullback, though, was a market that was speculative, overbought, greedy and ready to selloff. That was much evident in the positioning of our market timing models and the underlying 'technical' state of the equity market."

Looking ahead, things could go either way, and Watling advises focusing on the market's technical setup and vulnerability to negative newsflow.

Laying out a few reasons for caution he points to Longview's selloff indicator that as of Monday is now flagging a pullback getting started. "This model is designed to signal the start of pullbacks (not the end). Its track record is good with the majority of signals occurring just ahead of minor or major pullbacks," he said.

Consistent with that selloff signal, he said price action for multiple key areas of the stock market had become "near vertical" ahead of Friday's selloff. "Near vertical price action usually occurs just prior to a pullback (and is a confirmation of the message of the selloff indicator)," he said.

That aggressive upward momentum also suggests short squeezes - when investors betting against shares must buy them back to cover losses - and FOMO (fear of missing out) buying. ASML, Oracle, Alibaba, Tesla, SK Hynix, Alphabet, Apple and country indexes such as Chile, Mexico, South Africa and South Korea all saw sharp rallies in September and/or early October, the strategist noted.

Another reason to stay cautious is that S&P 500 futures have been as low as 1.3 million (50 day smoothed moving average), which points to a tired market due for a shakeout. He said those levels are similar to what was seen ahead of the February - April pullback and the 2022 bear market. "This has been an effective signal warning of major equity pullbacks since the GFC," he said.

A fourth reason is rife speculation. He pointed to heated activity for single stocks, such as record-high volume on call options, which give the buyer the right to purchase a specific stock at a specific price and are often seen as a bullish strategy. Even after Friday's selloff, that indicator remains high, indicating "speculation hasn't been expunged from the market," he said.

Watling said a handful of market timing models that he watches closely are all biased toward sell, such as this one - the Hulbert Nasdaq Newsletter Sentiment Index, shown stacked up against the Nasdaq Composite COMP:

Watling said a big risk to the advice for investors to stay cautious is that buy-the-dip psychology proves sticky and his models get overrun. But he said they also would add to their cautious view that there are signs of the U.S. economy slowing and they also believe earnings estimates are overstated.

"Certainly the price action in recent weeks has resembled elements of 1999 (e.g. high percentage daily moves in large-cap stocks, among many other factors)," and this makes for a tough environment for Longview's timing models, he said.

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are under pressure, led by tech, after Monday's strong rebound. Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y are softer. Silver (SI00) is slipping, the dollar DXY is lower and oil (CL00) is also falling.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6654.72    -1.27%  0.60%   13.14%   13.56% 
   Nasdaq Composite                                                     22,694.61  -1.08%  1.55%   17.52%   22.66% 
   10-year Treasury                                                     4.033      -11.90  -1.10   -54.30   -7.20 
   Gold                                                                 4161.1     4.44%   11.87%  57.66%   56.09% 
   Oil                                                                  59.22      -4.05%  -6.42%  -17.60%  -17.60% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Third-quarter results are kicking off with JPMorgan $(JPM)$ reporting earnings and revenue that beat forecasts. Goldman Sachs $(GS)$, Wells Fargo $(WFC)$ and Citigroup (C) are still to come. Follow our Live Blog here.

Domino's $(DPZ)$ and Johnson & Johnson $(JNJ)$ will also report.

Hitting stock futures Tuesday, China has sanctioned five U.S. subsidiaries of Korea's Hanwha Ocean - shares fell 8% in local trading - in retaliation for a U.S. probe into the strength of that country's shipping industry.

Polaris shares $(PII)$ are climbing after the auto manufacturer said it's selling its Indian brand motorcycle.

Navitas Semiconductor stock $(NVTS)$ is up over 20% after the chip group reported advances in developing purpose-built power devices to enable Nvidia's architecture.

A speech from Fed Chair Jerome Powell is ahead at 12:20 p.m., with Fed Governor Michelle Bowman ahead of him at 8:45 a.m. Fed Governor Christopher Waller and Boston Fed President Susan Collins will speak around 3:30 p.m.

The National Federation of Independent Business optimism index showed decreasing optimism in September, dropping 2 points to 98.9, the first fall in three months, with the Uncertainty Index climbing 7 points to 100, the fourth-highest reading in over 51 years.

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-Barbara Kollmeyer

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October 14, 2025 06:57 ET (10:57 GMT)

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