S&P 500 on brink of bear market as Trump tariff selloff continues

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A selling stampede hit stocks around the world, with the S&P 500 dropping to the brink of a bear market as economic fears continue to rattle trading just days before President Donald Trump’s reciprocal tariffs take effect.

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A US$9.5 trillion global wipeout dragged the U.S. equity benchmark down about 20 per cent from its February all-time high. That’s set to be the second-fastest plunge of the 14 bear markets since the Second World War. The index sank about 2.5 per cent Monday. Wall Street’s “fear gauge” – the VIX – briefly topped 60. As bonds reversed their rally, markets reduced bets on policy easing by year end to around 100 basis points – equivalent to four quarter-point cuts.

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Traders looking for a bottom in equities are facing the prospect of another bumpy week in global markets amid fears that a full-fledged trade war will sink the economy into a recession. Wall Street billionaires Bill Ackman and Stanley Druckenmiller slammed Trump’s decision to launch expansive global tariffs, and JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon urged a quick resolution.

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National Economic Council Director Kevin Hassett told Fox News that more than 50 countries have proposed “great” deals in response to U.S. tariffs.

“For now, it looks like news out of Washington will continue to drive the market’s swings, one way or the other, said according to Chris Larkin at E*Trade from Morgan Stanley. “Some notable lows over the past few decades have been preceded by similar levels of volatility, although it’s always impossible to know when prices will eventually find their bottom.”

To Matt Maley at Miller Tabak, the tariff issue is far from the only one that has caused this decline, so those looking for a V-shaped recovery in the stock market will likely be very disappointed.

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“We should see a strong bounce at some point soon, but the process of repricing the market to its realistic economic outlook will take time,” Maley said. “There will be plenty of time to get aggressive when it becomes more evident that the worst of the decline is behind us.”

HSBC strategist Max Kettner is making the case for a “very short-term bounce” in stock markets, with the Magnificent Seven possibly benefiting the most. However, any rebound will only set the stage for another leg lower, he warns. To Morgan Stanley’s Michael Wilson, investors should be prepared for the S&P 500 to drop further if tariff angst doesn’t subside.

If history is a guide, the damage will take a long time to undo. Since World War II, the median bear market has lasted 13 months, with the S&P 500 falling 32 per cent on average over the span, CFRA data show. That means the S&P 500 wouldn’t see another all-time high until around March 2026. Of the previous 14 cycles, only three ended in less than four months, most recently the COVID drawdown in 2020.

“Many metrics are at panic levels associated with meaningful bottoms over the past 40 years,” said Jonathan Krinsky at BTIG. “The issue is when you get into the capitulation zone, markets often move beyond what many think is likely or possible.”

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Hedge funds recorded their largest-ever one-day net sales of global equities on the first day of trading after Trump’s sweeping tariffs announcement, according to Goldman Sachs Group Inc.’s prime brokerage desk. The same division at JPMorgan Chase & Co., which also saw aggressive selling among hedge funds, said declines in positioning would indicate the market is getting close to a tactical bottom.

Meantime, the retail crowd is the last group of investors that has yet to sell U.S. equities, presenting an additional risk to the stock market, according to Goldman’s trading desk.

The slump in equities has taken U.S. equity valuations to the lowest level since late 2023.

Bloomberg.com

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