Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., April 7, 2025. REUTERS/Brendan McDermid/File Photo
Sharp U.S. Stock Decline Fuels Concerns of Deeper Market Correction
April 2, 2025 — NEW YORK — A significant downturn in the U.S. stock market is raising alarms among investors and analysts, who warn of the potential for further declines amid rising global trade tensions and growing uncertainty over corporate earnings.
On Monday, the S&P 500 Index (.SPX) experienced extreme volatility, at one point falling more than 4% before closing slightly lower by 0.2% at 5,062.25. The recent drop leaves the index more than 17% below its all-time high of February 19, prompting analysts to revisit bear-case scenarios not seen since the 2008 financial crisis or the onset of the COVID-19 pandemic in 2020.
Tariffs and Fundamentals Weigh on Markets
Investor anxiety has been driven largely by President Donald Trump’s renewed implementation of broad tariffs, which last week contributed to the market’s worst weekly performance since the early days of the pandemic.
Matthew Maley, Chief Market Strategist at Miller Tabak, suggested that the S&P 500 could fall to 4,300 in the coming months, with a drop to 4,000 or lower remaining a distinct possibility. He argued that markets had become overly optimistic about short-term gains from artificial intelligence and had not sufficiently accounted for weakening consumer trends.
“This is more than tariffs,” Maley noted. “This is the process of the market falling back in line with its underlying fundamentals.”
Analysts Outline Worst-Case Scenarios
Some strategists foresee the potential for even deeper declines. In the most severe projections, the S&P 500 could fall by up to 50% from its peak—similar to the aftermath of the dot-com collapse in 2000.
Recent losses have been among the steepest in U.S. history over such a short span. According to Truist Advisory Services, the S&P 500’s 10.5% combined drop on Thursday and Friday was the fourth-largest two-day decline since 1950, comparable to events during March 2020, November 2008, and the 1987 “Black Monday” crash.
Strategic Outlooks Diverge on Recovery Potential
On Monday, JPMorgan strategists presented a year-end “bear case” forecast for the S&P 500 of approximately 4,000, assuming no resolution to trade conflicts and stagnant profit growth through 2026.
Evercore ISI outlined a base “bear” scenario of 4,500 and a more severe “SuperBear” scenario of 3,100, which would mark a nearly 50% decline. The latter assumes a recession, a 15% fall in annual corporate profits, a disrupted credit market, and potential challenges in raising the U.S. debt ceiling.
Michael Purves, CEO of Tallbacken Capital Advisors, said such scenarios are increasingly plausible given the current environment. “It’s not an unrealistic scenario at all,” Purves said, citing the dual pressures of earnings and valuation contraction.
Valuations and Earnings Revisions Under Scrutiny
The forward price-to-earnings (P/E) ratio for the S&P 500 has declined from 22.4 in February to 18.4 last Friday, aligning with its 10-year average, according to LSEG Datastream. However, it remains higher than the 40-year average of 15.8 and still above levels seen as recently as 2022, when the Federal Reserve aggressively raised interest rates to combat inflation.
Moreover, current valuations are based on optimistic earnings expectations that many analysts believe have not been sufficiently revised to reflect potential economic headwinds. According to LSEG IBES data, S&P 500 earnings are still projected to grow by 10.4% in 2025. Historically, earnings fall an average of 24% during recessions, raising the possibility that projections may be overly optimistic.
“If it’s a 50% probability of recession, you’ve got to look at another 20–25% down in equities from here,” said Colin Graham, Head of Multi-Asset Strategies at Robeco.
Potential for Market Rebound Hinges on Trade Developments
Despite the prevailing concerns, several strategists believe that markets could recover if trade tensions ease. Evercore’s base-case forecast calls for a year-end S&P 500 level of 5,600, representing a 10% gain from current levels.
Markets briefly rallied on Monday following a report suggesting the Trump administration was considering a 90-day suspension of tariffs. However, the White House denied the report, causing the market to reverse course.
Michael James, Managing Director of Equity Trading at Rosenblatt Securities, emphasized the importance of a policy shift to restore investor confidence: “The only thing that’s going to help both sentiment and the market’s direction is going to be some easing of the entrenched tariff views.”
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