Why the S&P 500 Could Soon Hit a New Low — And Why It Might Be a Major Buying Opportunity

April 16, 2025

Key Points

A detailed look at the divergence between consumer sentiment and S&P 500 performance suggests more downside risk.
The Market Mood Meter, COT data, and seasonality models all point toward a possible new low before a trend reversal.
Despite the near-term weakness, fundamentals show the S&P 500 is undervalued — setting the stage for a strong rebound.

Analyzing the Market Beyond the Headlines

In this article, we dive into a multi-layered analysis of the S&P 500 using Our Terminal among other tools. While recent price action has shown weakness, understanding the story behind the numbers suggests a potential strategic entry point is on the horizon.

Consumer Confidence and Price Divergence

One of the first indicators to watch is Consumer Confidence, accessible via Trading Economics. Historically, consumer sentiment has acted as a leading indicator for market turns.

In late 2021, sentiment started to decline even as the S&P 500 continued to climb. This divergence anticipated the correction of 2022.
A similar pattern emerged in early 2025, with the market reaching new highs despite weakening sentiment.
Currently, the trend remains bearish with no sign of positive divergence — suggesting the downtrend may not be over yet.

This behavior underscores how sentiment can lead prices, highlighting the importance of monitoring it in conjunction with price action.

The Market Mood Meter: A Data-Driven Sentiment Gauge

The Market Mood Meter (MMM), a proprietary indicator inside the Forecaster Terminal, functions like a statistical version of the Fear & Greed Index — but it’s grounded in raw data and thus can be applied to any asset.

The first major drop in 2025 pushed the MMM into the “panic selling” zone.
A rebound followed, but recent declines have not yet pushed the indicator to the critical zero line — a trigger historically preceding major buy signals.
The current lack of alignment between the MMM and price action indicates that one final leg down might still be necessary before a sustainable rally begins.

The ideal scenario? A new lower low in prices with a bullish divergence on the MMM — the classic signature of a market bottom.

COT Data: Hedge Funds and Asset Managers Turn Cautious

The Commitments of Traders (COT) report, sourced from the CFTC, and synthesised in the Forecaster Terminal provides insights into institutional positioning. When imported and visualized inside the Forecaster Terminal, this data becomes a powerful sentiment tool.

Hedge funds have reduced their short exposure during the latest pullback — a subtle bullish signal.
Asset managers, typically long-only participants, have also begun to close out short hedges, signaling cautious optimism.
While not a screaming buy signal, these positioning shifts often precede medium-term recoveries.

This institutional behavior adds another piece to the puzzle: the smart money is no longer betting aggressively against the market.

Seasonality and Statistical Expectations

The Forecaster Terminal’s seasonality page compares current price patterns with historical averages across multiple time frames. Right now, only the 3-year seasonal model shows a strong correlation with 2025 price action.

This model suggests an average decline of -5.3% between mid-April and May 12.
If we apply this projection to today’s levels, a drop to the 5,000-point region on the S&P 500 is likely — aligning with both sentiment and positioning indicators.

Seasonality, while not a guarantee, often reflects behavioral and institutional trends embedded in market rhythms.

Fundamentals Confirm the Market Is Undervalued

Despite the short-term weakness, the long-term outlook remains constructive. The Forecaster Terminal aggregates the net income of all S&P 500 companies, and the data is compelling:

The combined net income for 2025 has reached $2.02 trillion, up significantly from previous years.
The S&P 500 is currently undervalued by 18% relative to its fundamentals.
In the long run, stock prices tend to follow earnings — and right now, earnings are healthy.

These metrics suggest that while we may see a short-term flush, the broader trend is underpinned by strong earnings growth.

Conclusion: A Drop Worth Watching

Based on sentiment divergence, institutional positioning, seasonality, and fundamental undervaluation, the S&P 500 looks poised to revisit lower levels — but this correction could mark a significant buying opportunity.

Investors should not panic if a retest of the 5,000 level occurs. Instead, monitor sentiment and divergence signals closely. If the Market Mood Meter aligns with bullish positioning and consumer sentiment stabilizes, it could present one of the most compelling entry points of 2025.