Welcome to the ‘Violently Flat’ Market. Where We Go From Here.

The stock market is waiting for the next shoe to drop. (NYSE)

Something’s clearly happening here for the stock market. Unfortunately, what it is ain’t exactly clear.

This past week was a rough one. The Dow Jones Industrial Average has declined 1.4%, while the S&P 500 index was on track to fall 1.7% and the Nasdaq Composite was down 2.5%. Most worrisome for investors was that the losses came despite a plethora of “good” news that should have sent stocks high.

Thursday was the fulcrum. Nvidia’s earnings and guidance were solid— some might even say spectacular —and initially, the stock and the market rose. The case for buying got a further boost by a delayed September jobs report which was weak enough to restore hope in a Federal Reserve interest rate cut despite beating estimates. In early trading that day, the market had even managed to turn positive for the week, and the bull market looked set to continue.

Created with Highcharts 9.0.1Market DashboardSource: FactSet

Created with Highcharts 9.0.1Dow Jones Industrial AverageS&P 500 IndexNASDAQ Composite IndexiShares Bitcoin Trust ETFNov. 17Nov. 21-16-12-8-404%

And then the selling started. There was no explicit explanation, though there were plenty of opinions. Bitcoin, which has fallen 32% from its October record high, was a supposed culprit. So was the fact that Nvidia’s solid numbers only reinforced concerns about artificial-intelligence spending, rather than alleviating them. Heck, it could simply be that investors wanted to sell the news, creating a situation where there were more motivated sellers than buyers.

So the market is waiting for the next shoe to drop—as well it should be. The S&P 500 has already sliced through its 50-day moving average, and its Thursday low of 6521.92 was just below the low of 6552.51 on Oct. 10, when President Donald Trump threatened additional tariffs. If the index meaningfully distances itself from that level to the downside, more losses could be in store.

And still, none of that means the market is necessarily doomed for the next few months. Friday, for instance, saw nearly 80% of S&P 500 constituents rising, despite the index coming under pressure due to selling in high-valuation AI plays like Oracle, Vistra, AppLovin, Advanced Micro Devices, and Palantir Technologies.

What’s more, with third-quarter earnings mostly over, the good news has likely been sold—and investors might start looking to buy again, especially if AI’s big spenders keep spending. “The spending boom is not likely to be over until one of the big cloud companies says, ‘Enough is enough,’ and we’re not seeing that yet,” says Tavis McCourt, equity strategist at Raymond James. “There will come a day where that happens. It feels early.”

That doesn’t mean the rest of 2025 will be easy. The last two months of the year are seasonally strong, so it’s disconcerting to see the S&P 500 headed for its worst November since 2008 and the Cboe Volatility index, or VIX, hit 26, its highest reading since April. That means the battle between the dip-buying bulls and the rip-selling bears is likely to continue for a while, at least until something comes along to change the narrative.

“The setup into year end is tricky,” writes 22V Research’s Dennis DeBusschere. “There’s no strong case to buy aggressively, but it’s also not a clear shorting environment. Markets will remain ‘violently flat,’ with sharp moves but no real direction.”

The stock market is living on the edge—and it may stay there for the rest of the year.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com