Market Overview
For the week, the S&P 500 dropped 2.4%, one of the more significant weekly declines in recent months, mainly owing to a sharp selloff on Friday when President Trump threatened to impose new tariffs on Chinese products, reviving fears of a new trade war and causing investors to put their money back in treasury bills.
Investor Sentiment and Economic Concerns
Earlier in the week, markets had been especially uneasy, since JP Morgan’s chief, Jamie Dimon, had warned of a possible market correction. When Dimon spoke of a wide range of six-month to two-years for a potential correction of between 20%-30%, citing excessive government spending and increased tension in the world, he gave as a major risk excessive government spending, an excessively militarized world and an increased risk of war in the world – anxieties were aroused that the bull market was living on borrowed time.
Historical Market Perspective
But history offers a certain perspective. In the years between 1885 and 1992, the Fed cut interest rates 28 times when the S&P was within 3% of a new all-time high; and 93% of these cases were followed by an increase in the market the following year, with an average increase of 13%. This shows a historical realism which reassures investors to have a longer-term perspective and not react too rapidly to short-term shocks.
Corporate Earnings and Market Fundamentals
Similarly, the fundamentals of American companies are relatively healthy since FactSet shows average earnings of the S&P 500 are expected to grow by 10.6% in the current year and accelerate by 13.6% in 2026, which is enough, at least for the time being, to support the long-term confidence of the market. The earnings trends and forecasts indicate that while valuations are high, they are not to the junctures of the great bubbles of 1929, 1972, and 2000.