S&P 500 Stages Rebound After $5 Trillion Plunge: Markets Wrap
The recent turmoil in global markets, triggered by Donald Trump’s political actions, has left investors on edge. Despite a bounce in stocks that provided some relief, the aftermath of Trump’s maneuvers continues to impact markets and unsettle US consumers. Yields on German bonds surged as government leaders approved a significant defense spending package, while the price of gold surpassed $3,000 for the first time, signaling a flight to safety.
The S&P 500 experienced a 2.1% increase, the largest since the aftermath of the November presidential election. Even a decline in consumer confidence data did not deter the market rebound, following a sell-off that saw the US equity benchmark drop by 10% from its peak. As the demand for safe-haven assets diminished, Treasuries followed German bonds lower, and the price of gold retreated after briefly reaching $3,004.94 per ounce.
The past week was marked by a series of dramatic events, including Trump’s fluctuating stance on tariffs, recession fears, geopolitical tensions, and concerns about a potential US government shutdown. These factors, along with doubts surrounding inflated tech valuations, led to the largest redemption in global equity funds this year, while sentiment indicators turned bearish, a signal that some contrarian investors view as bullish.
Ed Yardeni, founder of a renowned research firm, commented on the market’s behavior, referring to the recent rally as a “scared-cat bounce.” He emphasized the impact of Trump’s tariff-related statements on market sentiment, noting that a lack of such comments could be beneficial for market stability. Yardeni also highlighted the relief stemming from the avoidance of a government shutdown but suggested that a true bottom in the market would be evident when stocks rise despite renewed tariff threats from the President.
Despite Friday’s gains, the S&P 500 recorded its fourth consecutive week of losses, the longest such streak since August. Tech giants like Nvidia Corp. and Tesla Inc. led the rally on Friday, with the Nasdaq 100 climbing by 2.5% and the Dow Jones Industrial Average adding 1.7%. Meanwhile, the yield on 10-year Treasuries increased by five basis points to 4.31%, while the dollar index declined by 0.2%.
Analysts like Craig Johnson from Piper Sandler and Dan Wantrobski at Janney Montgomery Scott suggested that the market could experience a relief rally of 3% to 6% in the coming weeks, as oversold conditions prompt short-term rebound efforts. However, they cautioned against premature optimism, emphasizing the need for genuine technical improvements to support sustained market recovery.
The uncertainty in the markets has prompted questions about whether the worst is over. Andrew Brenner at NatAlliance Securities highlighted concerns about the upcoming seasonal trends, noting that the end of February to mid-March typically poses challenges for equities. The recent correction, which wiped out approximately $5 trillion from the S&P 500’s value, raised questions about the duration of the adjustment period forecasted by White House officials.
Historical data from CFRA Research suggests that it takes an average of eight months for the market to reclaim previous highs following a 10% correction without entering a bear market. This timeline could extend until mid-October, with an average drawdown of 14% in similar instances. Despite the current market turbulence, analysts like Mark Hackett at Nationwide believe that corrections are a natural part of market cycles and can serve as a necessary correction for overheated conditions.
Ross Mayfield at Baird Private Wealth Management pointed out that the differentiation between healthy selloffs and prolonged bear markets often depends on the presence of a recession. Non-recession corrections since 1965 averaged a 16% drawdown, while recession-related selloffs saw an average decline of 36%. Mayfield expressed optimism about the current economic outlook, indicating that a near-term recession seems unlikely.
In summary, the recent market volatility fueled by political uncertainties and economic concerns has tested investor resilience. While the bounce in stocks provided temporary relief, the underlying challenges facing global markets remain. As investors navigate this turbulent period, cautious optimism and a long-term perspective will be crucial in weathering the storm.
