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17.04.2025 09:55 AM
Markets swing between euphoria and panic

If you believe a recession is looming, the rule is simple: sell first, ask questions later. When the National Bureau of Economic Research officially declared a recession in the United States in December 2008, the S&P 500 plunged, marking a historic moment. Now, the era of calm in US equities is firmly in the rearview mirror, giving way to constant turbulence. Investors need to adjust to a new reality.

In 2024, the S&P 500 hit dozens of record highs and avoided single-day declines of 2% or more, making it the best year for bulls since 2007. What came next is etched in the market's memory. Today, the odds of a US recession are rising rapidly.

US recession probability

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The calm of recent years has been shattered by Donald Trump's trade policies. According to Fed Chairman Jerome Powell, markets are simply doing what they are supposed to do: reacting to the biggest tariff hike since the 1930s. The result will be rising inflation, higher unemployment, and a central bank torn between its dual mandates. With key economic indicators pulling in opposite directions, the Fed faces a new storm.

Powell's remark that monetary policy is currently "in the right place" convinced investors that the Fed is not throwing out a lifeline. Neither is the White House. And if that is the case, the S&P 500 could be headed right back into bear territory.

After all, the trade war is just getting started and its effects could be long-lasting. The US government's demand that NVIDIA obtain a license to sell chips to China triggered a sell-off in the tech giant's stock. Markets immediately priced in a revenue slowdown. Meanwhile, Beijing hit back with restrictions on Boeing aircraft purchases and laid out conditions for returning to the negotiating table.

Bad news for the S&P 500 is coming from all directions. The World Trade Organization slashed its 2025 global trade growth forecast by 0.2%, a far cry from the 2.7% it predicted before Washington's Independence Day tariffs. And this could be just the beginning. If the US goes further, trade could shrink by as much as 1.5%.

International trade dynamics

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Supply chain disruptions are bad for business. So is uncertainty. And what is bad for business is dreadful for the economy. Is a recession closer than it seems?

Technically, on the daily chart, the failure of bulls to hold the critical 5,400 pivot has exposed weakness and triggered selling. A break below the 5,225 and 5,200 support levels would pave the way for adding to existing short positions. A return to buying only makes sense if the broader equity benchmark can rise above 5,400 or, better yet, 5,455.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
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