S&P 500 Could Crash 37% To 3,700 If Tariff Fallout Triggers Recession, Warns Wolfe Research

The S&P 500 Index tracked by SPDR S&P 500 ETF Trust SPY could plunge as low as 3,700 points even in a “mild recession” scenario, representing a potential 37% decline from its January levels, according to Wolfe Research.

What Happened: Chris Senyek, the firm’s Chief Investment Strategist, warns that the index could fall between 3,700 and 4,100 amid economic contraction, as reported by CNBC, reflecting heightened concerns over trade policy uncertainty.

“If uncertainty caused by tariff policy were to push the U.S. economy into recession in 2025, we’d expect SPX EPS to fall at least 15% from current levels,” Senyek wrote Thursday. This would align with the median 16.7% earnings decline observed across the past four recessions.

The strategist projects S&P 500 earnings per share could drop to approximately $225 from the currently estimated $266, coinciding with about 1% negative real year-over-year Gross Domestic Product growth.

Why It Matters: The index has struggled since President Donald Trump‘s April 2 tariff announcement, which triggered significant market volatility. After briefly entering bear market territory earlier this month, the S&P 500 remains 11% below February’s all-time high and down more than 6.50% year-to-date.

Senyek expects price-to-earnings ratios would compress from the current 19.4x to historical averages between 16.6x and 18.4x in a recessionary environment, contributing to the projected market decline.

U.S. markets have recently staged a three-day rally amid cooling trade tensions and positive earnings surprises, though prominent investors like Cathie Wood have warned that tariffs represent “tax increases” that could hamper economic growth.

Read Next:

Image Via Shutterstock

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.