ASX Trader: Think the stock market crash is behind us? It could get worse

The warning signs were clear - a stock market meltdown was coming ... and it hit. But was it a textbook correction or are we in for a far more severe decline, writes ASX Trader.

As we move through April 2025, markets are under pressure.

Volatility is rising, investor confidence is fading, and a familiar question is circulating on trading desks and in group chats alike: Is this just a routine correction or the start of something much deeper?

For those who’ve followed my recent analysis, this downturn shouldn’t come as a surprise.

Back in February, I warned of a coming market rollover, and we’ve now reached my initial downside target which was a break below 5,100 on the S&P 500.

The big question now is: Was that it?

If this is a textbook correction, we may have already seen the worst.

But if the market fails to reclaim critical resistance near 5,600, or worse, breaks down below 4,500, the door opens to a far more severe decline, potentially all the way to 2,750.

So, what are we really correcting here, the bull run from October 2022, or something far larger, perhaps even the entire expansion since the post-GFC lows?

Let’s dive deeper.

Could we be in for a far more severe crash?

What is the election cycle?

The Presidential Election Cycle is a four-year rhythm that’s played out in U.S. markets for over 100 years.

It’s not theory it’s statistical history. Here’s how it typically unfolds:

• Year 1 (Post-Election Year)

A new term begins. The president pushes policy, makes tough decisions, and resets the fiscal agenda. Markets tend to struggle with uncertainty initially and then soar for remainder of year.

• Year 2 (Midterm Year)

Corrections are common, investor sentiment weakens but this is historically the best time to accumulate.

• Year 3 (Pre-Election Year)

The strongest year on average. Incumbents typically stimulate the economy heading into the election.

• Year 4 (Election Year)

Solid returns, but political noise dominates the headlines.

What’s remarkable is that if you look back at the last cycle starting from 2020 the S&P 500 has followed this pattern almost perfectly:

- A strong post election year rally in 2021

- A deep correction that bottomed in October 2022 - right on schedule for the Midterm Year as you can see from attached chart

- A massive bull run throughout 2023 and 2024 - the textbook Pre-Election Year surge.

And now in April 2025, we’re in Quarter 1 of the Post-Election Year historically a weak period, but also the beginning of setups for the next leg higher.

Will the stock market follow the traditional election cycle or are other factors at play which could lead to a steep decline? (AP Photo/Alex Brandon)

Even more impressively, the specific months of key market tops and bottoms like January 2022 and October 2022 have aligned almost perfectly with the cycle’s historical rhythm.

That alignment has helped me stay on the right side of the market over the past four years navigating major turns with confidence, rather than emotion.

So, while markets are currently shaky, if the cycle continues to hold, the remainder of 2025 may offer another classic “buy the dip” opportunity just like history says it should.

This chart shows where we are at in the election cycle

What is seasonality and why it matters

Seasonality in markets refers to the idea that certain times of the year or certain years in a cycle tend to produce more reliable results.

It’s not about predicting the exact future it’s about understanding when the odds are in your favour.

Think of it like fishing.

If you go fishing when the fish aren’t biting, you might still catch something but it’s going to be a grind.

But if you go when they are biting, when the water’s warm, the bait’s right, and the tides align your chances of success go way up.

Markets work the same way.

Certain periods, like Year 3 of the Election Cycle or the end of October through April (aka “Sell in May and go away”), have historically delivered stronger returns.

Knowing this allows you to fish when the fish are biting.

Buy the dip? History backs it

In the Post-Election Year (Year 1) of the U.S. Presidential Cycle, markets often stumble early due to policy uncertainty, leadership changes, and shifting economic agendas but from Q2 onward, performance typically improves as investors gain clarity on the new administration’s direction, rate policy stabilizes and smart money begins quietly accumulating oversold assets. It’s like fishing: Q1 waters are murky, but by mid-year, conditions improve and the fish start biting historically setting up strong buying opportunities before the next leg higher.

Fish where the fish are biting.

Why this time could be different

While history says Year 1 is usually a time to “buy the dip,” there’s a strong case to be made that 2025 might not follow the usual playbook.

If we look back to the year 2000, we see striking similarities: extremely stretched equity valuations, an inverted yield curve, and a market that peaked right around the election all followed by a historic crash in the months after.

In that cycle, the damage wasn’t just a shakeout it was the beginning of a multi-year unwind. Fast forward to today, and we’re seeing echoes of that setup: the Fed is still tight, valuations are elevated, and leading indicators like the yield curve have been warning of a slowdown for over a year.

So, while seasonal patterns and the election cycle suggest Q2–Q3 could offer opportunity, it’s equally possible that 2025 ends up looking a lot more like 2000 and less like the textbook “buy the dip” environment.

The key is staying alert, flexible, and data-driven not blindly following history.

The yield curve could be the undoing to a traditional election cycle movement.

What does a yield curve inversion mean?

A yield curve inversion happens when short-term interest rates (like 2-year bonds) are higher than long-term ones (like 10-year bonds), which is the opposite of what’s normal.

This flips the curve and usually means investors expect trouble ahead like slower growth or a recession.

It’s been one of the most reliable warning signs in history, showing up before every U.S. recession since the 1950s.

And when the curve eventually “un-inverts” meaning it goes back to normal that’s often when the recession actually hits.

So, while an inversion is a warning, the un-inversion is the moment to watch closely.

This is happening right now just like in the year 2000, 2007 and 2020 which all led to major crashes in the stock market.

Bottom Line: Caution, Context, and Cycles

While the Presidential Election Cycle tells us that Year 1 pullbacks often present strong buying opportunities heading into Year 2 and 3, 2025 might be different.

With elevated equity valuations, a deeply inverted yield curve which is currently un-inverting, and rising macro uncertainty, the setup looks eerily similar to the year 2000 where a post-election crash kicked off a multi-year bear market.

History gives us helpful patterns, but it’s not a guarantee.

This time, the combination of high rates, sticky inflation, and leading recession signals (like the yield curve) could mean we’re not just in a dip but at the edge of something bigger.

Smart investors should stay open-minded, use history as a guide not a crutch and remember that when cycles shift, it’s the flexible, not the hopeful, who come out ahead.