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President Trump catalyzed the worst market sell-off in six months and then reversed it with a single post on Truth Social.
Friday’s $2 trillion rout led some commentators to call out the popping of a bubble, yet it turned out to be a one-day bear market that vanished by the next trading session.
U.S. stocks finished higher Monday, recovering more than half their losses from the sell-off, while bitcoin and other cryptocurrencies also climbed.
As a recap:
- Friday: Trump threatened new tariffs on China, triggering a 2.7 percent drop for the S&P 500
- Sunday: He softened his tone, telling investors not to worry about China
- Monday: Stocks rebounded, with the S&P 500 gaining 1.6 percent
The series of events echoed April’s “Liberation Day” pullback, when tariff news spooked investors but ultimately punished sellers more than those who stayed in the market.
Yardeni Research founder Ed Yardeni expects the US and China to reach a deal before any lasting economic damage occurs, something markets seem to now recognize.
“The odds favor Teams Trump and Xi stepping back from the brink and avoiding the deep global recession all this would likely cause,” Yardeni wrote in a Monday note.
Strategist Michael Wilson of Morgan Stanley, meanwhile, said the stock market was set up for a correction anyway given valuation concerns and unfavorable seasonality.
The bank sees the S&P 500 resuming its climb, arguing that the broader cycle still looks early-stage despite rising volatility and stretched valuations.
Not only that but recession risks, Wilson noted, are indeed behind us.
That said, he maintains that a second, larger sell-off is likely if the U.S. and China fail to reach an agreement.
“With Friday’s impulsive reversal at a key level of resistance, we believe the first leg up of this new bull market is now complete and we can see a healthy correction,” Wilson said.
“If we don’t see trade de-escalation over the next several weeks, the drawdown is likely to be larger than consensus expects (i.e, 10-15 percent in S&P 500 terms).”
To be clear, if we shelve the geopolitics, the optimistic case for stocks becomes hard to refute.
As Opening Bell Daily covered Monday, the bull market just reached its third anniversary, and history suggests plenty of upside ahead.
- Multiple more Fed rate cuts are expected
- AI momentum remains not only strong but accelerating
- Only one bull run since WWII hit 3 years without reaching its fourth
- S&P 500 is up 83 percent this bull market, far less than the average 191 percent of the last 11 bull markets
“Most bull markets go longer than three years,” said LPL Financial’s chief equity strategist Jeff Buchbinder. “They last about five years on average, but the 1990 and 2009 bulls lasted twice that long. So this bull is not old.”
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Phil Rosen
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