According to Michael Hartnett from Bank of America, continued weakness in the stock market may force President Donald Trump to reconsider his stance on tariffs. Despite administration officials asserting that the current stock market downturn is merely a momentary response to the president’s pro-Main Street policies, Hartnett believes a reaction from Trump is inevitable, as noted in his weekly market analysis. He remarked, “We categorize this as a correction, not a bear market in U.S. stocks.” He added, “Markets cease to panic when policymakers begin to panic… as an equity bear market threatens recession, further falls in stock prices will induce a shift in trade and monetary policy back to a more favorable position.” This insight comes as markets are declining primarily due to concerns that Trump’s extensive tariffs may lead to increased inflation and potentially jeopardize the economy. The S&P 500 index fell into a 10% correction from its peak in February, although there was a strong rebound on Friday.
.SPX 1M line S&P 500 trajectory over the past month.
Hartnett believes the damage to the market will be moderate, but he does not anticipate that the selling pressure has concluded. He considers the large-cap S&P 500 index “a good buy” if it reaches 5,300, an additional 4% drop from Thursday’s closing, particularly when institutional investors’ cash reserves exceed 4%. One concerning indicator he notes during this sell-off is the concurrent decline in both stock prices and Treasury yields, a pattern he associates with market dynamics observed in 2000, 2002, and during the 2008 financial crisis. Hartnett observed, “The positive aspect is that financial conditions are easing,” referencing lower yields along with a decrease in the U.S. dollar and oil prices. He further mentioned that “corrections conclude when the sell-off ‘laggards’ falter,” pointing to increasing credit spreads. “In conclusion…up in stocks, up in yields, up in dollar positioning has so far painfully turned to smoke in ’25, yet sentiment, positioning, and price indicate that the equity correction is not completely resolved,” he stated.
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