President Donald Trump’s trade war has U.S. stocks on track to enter their first bear market since the Covid pandemic.
The S&P 500 Index sank another 3.5% Monday, putting it 20% below the record high set less than two months ago — the second-fastest plunge of the 14 bear markets since 1945, CFRA data show. Some $9.5 trillion in value has been lost in just 33 trading days. Wall Street’s fear gauge — the CBOE Volatility Index, or VIX — jumped higher than 60 overnight after closing at 45 Friday, well above the long-term average of 20.
Selling was heaviest among chipmakers, with Super Micro Computer Inc., On Semiconductor Corp. and Micron Technology Inc. down at least 37% since the S&P peaked on Feb. 19. Shares in travel firms from Delta Air Lines Inc. to Norwegian Cruise Line Holdings Inc. lost more than 40%. Nvidia Corp. is off 32%, Tesla Inc. some 35% and Palantir Technologies Inc. even more.
Investors are rapidly pricing in a recession after Trump announced the harshest trade barriers in a century last week, ditching risk assets in favor of havens like Treasuries and the Japanese yen.
“Even people who don’t own stocks lose confidence when they hear the stock market is collapsing or is in a bear market,” said Mark Malek, chief investment officer at Siebert. “A bear market is absolutely terrible psychologically to hear. The risk then is that sentiment can start to feed on itself and becomes a sell-fulfilling prophecy as people start cutting back on spending.”
If history is a guide, the damage will take a long time to undo. Since World War II, the median bear market has lasted 13 months, with the S&P 500 falling 32% on average over the span, CFRA data show. That means the S&P 500 wouldn’t see another all-time high until around March 2026. Of the previous 14 cycles, only three ended in less than four months, most recently the Covid drawdown in 2020.
It can get worse
Wall Street pros say the selloff can get a lot uglier. Equity valuations are still higher than where they were in previous routs the led to economic downturns. In past events when volatility has spiked sharply, equity positioning sank well below its typical range, data from Deutsche Bank shows. Should positioning fall to the levels it reached during the pandemic, it implies S&P 500 at 4,750, strategist Parag Thatte said. It’s currently trading at around 4,890.
“There’s no reason to believe the current decline is anything other than the start of a new cyclical bear market,” said Doug Ramsey, chief investment officer at the Leuthold Group.
The S&P 500 isn’t the only major benchmark facing a bear market, the tech-heavy Nasdaq 100 Index is already there. Equity indexes around the world have also endured stunningly quick slides of similar magnitudes, including Japan’s Nikkei 225. Oil is also tumbling along with commodity prices.
US stocks are coming off their worst quarter in decades relative to peers around the world. As the selloff on American equities escalated on the Trump administration’s policy uncertainties, investors flocked to the relatively cheaper stock prices in Europe.
Even within U.S., the flight to safety is picking up rapidly, with money flowing out of riskier assets and traditional havens. For example, value stocks just notched the best quarter versus growth since 2022, while two Goldman Sachs Group Inc. baskets that track unprofitable technology companies and those with the most bearish bets against them have climbed rapidly enough to wipe out all of their gains from the past year.
Quick drop
The S&P 500’s decline marks the end to what was in many aspects an unprecedented bull market. From its start on Oct. 12, 2022, to its peak on Feb. 19 of this year, its 24.3% annualized gain is the third best in history. However, its span of 861 days makes it the fourth-shortest bull-market since World War II, CFRA data show.
Retail investors, typically the last bastion of bullishness in the U.S. stock market, are finally starting to crack, according to data from JPMorgan Chase & Co. and Fidelity Investments. Sentiment has turned extremely pessimistic, with the American Association of Individual Investors’ latest survey showing expectations that stock prices will fall over the next six months was at the third-highest level ever.
Other disruptions are contributing to the erosion in sentiment. Elon Musk’s efforts on behalf of the Trump administration to gut the federal bureaucracy are starting to weigh on jobs numbers at time when nervousness is already high. Meanwhile, emergence of Chinese AI-startup DeepSeek struck at the heart of the theory that the U.S.-based AI-giants are unique and deserve a premium valuation.
“These tariff policies, if sustained, will be enough to take U.S. and global economy in recession by the end of this year,” said JPMorgan strategists led by Fabio Bassi and Dubravko Lakos-Bujas. “If there are no concessions, we see risks of wiping out most of the earnings growth for the S&P 500, with further downside with recession as a baseline.”
