US stocks suffered their worst session of 2025 as weaker-than-expected economic data and a surge in long-term inflation expectations—the highest since 1995—dampened investor sentiment. Reports on consumer sentiment, housing, and services unsettled the market, while a notional $2.7 trillion in options set to expire added further volatility. Gains in vaccine manufacturers followed reports of a new coronavirus study in China, intensifying the uncertainty.
Analyst Insights and Options Expiry Impact
Keith Lerner at Truist Advisory Services attributed the market shakeout to a combination of disappointing data and high stock valuations.
Similarly, Katy Kaminski from AlphaSimplex Group described the day as a “classic risk-off” scenario, underscoring the widespread caution among investors.
The expiration of options and the buildup in market shorts further fueled speculation that the volatility might be short-lived.
US Stocks Performance and the Safe-Haven Rally
The major indexes closed red:
- S&P 500 dropped over 1.5%
- Nasdaq 100 fell by 2.1%
- Dow Jones Industrial Average slid by 1.7%
Sectors closely tied to economic performance, such as transportation and small-cap stocks, took significant hits, while a key index tracking the “Magnificent Seven” megacaps declined by 2.5%.
In contrast, Treasuries rallied as investors sought safe-haven assets, with the 10-year note yield settling at 4.43% after an eight-basis-point drop, and the US dollar strengthened with its key index rising by 0.3%.
Weekly Market Performance
For the week:
- S&P 500 slipped -1.7%
- Nasdaq Composite -2.5%
- Dow Jones: -2.5%
Friday’s Closing Levels
What Analysts Are Saying
- Bolvin Wealth Management Group (Gina Bolvin): Weaker retail sales guidance from Walmart, paired with ongoing policy uncertainty, may serve as a catalyst for a market correction. Despite these concerns, Bolvin remains optimistic about the long-term outlook—highlighting robust earnings growth and anticipating that the Fed’s next policy move will be a rate cut. “A cautious consumer may finally rein in spending, which could help ease inflation,” she added.
- Goldman Sachs Strategists: Hedge funds have trimmed net positions on most of the “Magnificent Seven” stocks. However, six of these mega caps remain among their top holdings, with Tesla Inc. as the lone exception. In addition, short interest in the median S&P 500 stock has climbed to its highest level since 2020, now representing 2% of market cap.
US Stocks Outlook: What’s Next?
Recent market swings may partly be attributed to options expiration. Analysts note that such volatility can sometimes reverse on the following Monday. Furthermore, the uptick in shorts last week might signal a potential rebound. While the short-term trend appears bearish, the medium- to long-term outlook remains bullish. Until a decisive break to the downside occurs, dip buyers are expected to re-enter the market—albeit after a bit more pain.
Source: CBOE, Bloomberg
This commentary was written by James Gomes, a seasoned finance professional with over 30 years of industry experience, including a tenure exceeding 20 years at a prominent US bank.
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