Table of Contents
Following a 10% decline from a record, a correction without triggering a bear market, the average time it took for equities to recover and reach their previous high was about eight months in the prior 24 such instances, according to data from CFRA Research.
Taking that as the base, for US stocks to breach the current record high hit on February 19 would be around the middle of October.
Usually, the average drawdown is around 14% during these times.
The caveat is that every downturn is unique, and there's no assurance that this one won't turn into a bear market.
Predicting where equities are likely to go from here requires more analysis of the effects of contradictory economic policies on growth and profitability compared to past market trends.
Some analysts are calling the current correction to turn into a cyclical bear market.
The S&P 500 decline saw a 10% fall at the seventh-fastest rate ever recorded.
Following US President Donald Trump's escalating trade dispute with America's top trading partners, the renewal of his mass deportation pledge, and the pressure on his campaign to dismiss tens of thousands of federal employees, the market took a final dive.
All these policies put upward pressure on prices just when economic data is beginning to show symptoms of weakness, and they threaten to destabilize a labour market that has been holding its own.
On Friday, Michael Hartnett of Bank of America predicted that Trump and Fed officials would likely intervene in the market to slow the significant plunge in US stocks.
But bulls have had very little reason to expect change from the president and his advisors thus far, particularly on the trade front. Economists have warned that the impending April 2 deadline for reciprocal tariffs on all countries with whom the United States trades will result in pricing pressures.
Investors are preparing for Wednesday's announcement of the central bank's next policy decision without considering the possibility of a rate cut. The economic downturn might be more severe and last longer if tariff uncertainty drags down consumer and company confidence.
Making the correct prediction during a recession can mean the difference between average losses and a complete collapse. On average, corrections that do not coincide with recessions drop 16%, whereas selloffs that do occur during recessions fall 36%.
What had been the stock market's most successful two years since the dot-com boom of the late 1990s, which has been shattered by uncertainty about the impact of tariffs on economic and corporate development and the prognosis for inflation?
The question now being asked by traders is how much worse things can become.
In the bear market of 2022, the S&P 500 dropped 25% between its high and low points. If the same were to occur this year, the gauge would be close to 4,700. The S&P was last trading at around 5,500 points.
As hope for a turnaround grows dim, Wall Street firms have joined the chorus of those lowering their expectations. After factoring in losses during the previous weeks, strategists at Goldman Sachs Group lowered their S&P 500 prediction. Even vocal bull Ed Yardeni lowered his gauge forecast by about 9% and warned that tariffs pose a greater risk of stagflation.
Rarely have stocks been so cheap.
With a current reading of 27, the S&P 500's relative strength index has fallen below the level observed less than 1% of the time this century.
According to Ramsey of the Leuthold Group, the dramatic decline in risk-taking could represent a bottom, which also labelled this the first leg of a bear market.
Crypto (Mostly) Stocks Take a Battering
With Bitcoin struggling to break above $85,000, trading far below its record high of $109,071 in January, it's unsurprising that crypto stocks have displayed little resilience against the S&P's downward pressure.
Crypto miners Riot Platforms and Marathon Digital are down 5% and 11% over the week while crypto exchange Coinbase has slipped around 7%.
However, Bitcoin maxis, Strategy (formerly Microstrategy), has seen its stock price rise almost 7% with Michael Saylor pledging a $500 million preferred stock deal to buy more Bitcoin.
Bessent Calls Corrections Healthy
On Friday, Michael Hartnett of Bank of America predicted that Trump and Fed officials would likely intervene in the market to slow the significant plunge in US stocks.
However, Treasury boss Scott Bessent wants you to stop worrying about the stock market.
Treasury Secretary Bessent said he was not concerned by the current stock market slump as the US was implementing new long-term economic strategies, citing the market reaction as short-sighted.
Bessent, in an interview on NBC's Meet The Press, said, "I've been in the investment business for 35 years, and I can tell you that corrections are healthy; they are normal."
He added, "I'm not worried about the markets. Over the long term, if we implement good tax policy, deregulation, and energy security, the markets will do great."
Investors are worried about how the new US administration's policies on trade, immigration, and budget cutbacks would impact the economy.
A combination of worsening consumer mood and growing growth fears has led to stock market losses.
However, Bessant asserted, "We are implementing measures to alleviate the affordability crisis and control inflation, and as we chart our course, I have faith in the support of the American people."
Traders, though, don't seem convinced.
Buyers aren't interested, even though big tech company valuations have plummeted from record heights.
Bessent warned there were "no guarantees" that the country would escape a recession.
Cryptos, stocks, and other risk assets are expected to have another challenging week.
Elsewhere
Blockhead
Blockhead
Blockhead
Blockhead
Blockhead
Blockcast
Kathy Zhu has been involved with the crypto industry from both inside and out, from her days as a journalist to her current role as APAC lead at Mezo, an EVM blockchain-based platform that allows users to stake BTC assets to secure itself and serve as Bitcoin's economic layer.
In this episode, Zhu explains the evolving role of Bitcoin and its various stakeholders, including miners, institutional investors, retail holders, and developers. She also highlights how asset management firms and staking protocols have emerged to help Bitcoin holders generate passive income while maintaining custody of their assets.
Blockhead
Previous episodes of Blockcast can be found on Podpage, with guests like Samar Sen ( Talos), Jason Choi (Tangent), Lasanka Perera (Independent Reserve), Mark Rydon (Aethir), Peter Hui (Moongate), Luca Prosperi (M^0), Charles Hoskinson (Cardano), Aneirin Flynn (Failsafe), and Yat Siu (Animoca Brands) on our most recent shows.
It's All Happening on LinkedIn
Did you know you can now receive Blockhead's juicy daily newsletters directly to your LinkedIn? Subscribe to our LinkedIn newsletters for the latest news and insights in the world of Web3. There also might be the occasional discount code for the industry's hottest events, exclusively for subscribers!
