US stocks have tanked sharply in recent weeks amidst concerns that higher tariffs under the Trump administration could lead to a global trade war.
Additionally, markets are worried that President Trump’s policies could also lead to a recession.
In total, the S&P 500 has lost nearly 10% since February 19, leaving investors wondering when the bleeding might finally stop and when it is appropriate to call the bottom.
While the longer-term outlook for US equities remains uncertain, there’s reason to believe that the sell-off is over now, at least for the near term.
What the fear gauge is telling us about the market sell-off
“VIX” or the CBOE Volatility Index that’s broadly known as the market’s fear gauge has more than doubled versus its year-to-date low and printed a new high of 29 on Monday.
Plus, the index’s curve has inverted recently, which means near-term contracts are now priced higher than contracts further out.
The unusual VIX curve inversion further indicates very high levels of fear in the near term that have historically signalled a short-term tradable bottom.
Note that the benchmark S&P 500 index has now given back more than half of the gain it had accumulated over the past seven months (since early August of 2024).
What to expect from the US stocks longer term
While the US stocks now look positioned to see some buying pressure in the near term, investors should remain cautious since the longer-term forecast remains foggy at best.
That’s because the sell-off is now related more to broader concerns of a possible recession ahead.
Trump tariffs could disrupt supply chains and increase costs for businesses this year, which they may pass on to consumers, leading to reduced spending – a notable driver of economic growth.
On the other hand, countries like Canada, Mexico, and China have already announced retaliatory tariffs that will likely hurt demand for US exports as well.
Together, these factors may lead to an economic slowdown, potentially resulting in further decline in the S&P 500.
Is the United States already in recession?
What’s also worth mentioning is that the recession debate may not be one for the future, according to Peter Berezin, chief global strategist at BCA Research.
Berezin started 2025 with a year-end target of 4,450 on the S&P 500. His worst-case scenario calls for the benchmark to revisit the 4,200 level this year as the US may already be in recession.
BCA sees increased probability of a recession under the new administration as “Trump would be very disruptive in some negative ways, most of which is trade.”
Peter Berezin never bought into the narrative that Trump would use tariffs to potentially negotiate better trade terms.
The US government actually needs the money to address its budget deficit, he argued in a recent note.
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