The S&P 500 index crashed by almost 5% on Thursday as the market reacted to Donald Trump’s tariffs on imported goods. It plunged to a low of $5,400, its lowest level since August last year and 12% below its highest level this year, meaning that it is in a deep correction.
Analysts have mixed outlooks for the S&P 500 index and its ETFs like SPY and VOO. Some believe that the crash will continue, while others see the drop as a good buying or dollar cost averaging (DCA) opportunity. This article explains the three top reasons why the S&P 500 and its ETFs will bounce back in this quarter.
S&P 500 index to rebound because of Trump’s deals
The main reason why the S&P 500 and other indices like the Dow Jones and the Nasdaq 100 indices crashed hard is the realization that Trump was serious about his tariffs. Investors realized that Trump would likely not negotiate with other countries. Besides, he has talked about these tariff issues for decades.
However, there are reasons to believe that he is open to deals. In a statement to journalists, he said that he would be open to deals if other countries offers the US something phenomenal.
He also gave an example of China, whose tariffs are 54%. He expects to lower tariffs if the country agrees to a TikTok takeover by an American company. Amazon, AppLovin, and Oracle are said to be interested.
The European Union has also not applied is tariffs with the US, with officials giving Trump room to reconsider his tariffs. That is a sign that the bloc expects to reach an agreement soon.
Trump may also be forced to negotiate if the stock market continues to crash. For a long time, he has said that the equities market is his favorite gauge as a president.
Read more: Is it a golden opportunity to buy the Nasdaq 100 index crash?
Recession could fuel tax cuts
A closer look at the financial market on Thursday shows that the bond market surged, with the 10-year, 30-year, and 2-year yields falling by 2%, 1.25%, and 2.5%. They had their best days this year as the closely-watched 10-year rising to 3.93%.
The bond market believes that the US will have a recession, leading to interest rate cuts by the Federal Reserve. Rate cuts would be a welcome factor in the equities market as it would lower the cost of borrowing and report risk-taking among investors.
Historically, ETFs like VOO and SPY soar when the Fed slashes interest rates in response to a black swan event. They all recovered after the dot com bubble burst in the early 2000s and during COVID.
SPY and VOO always recover after big events
History shows that the US stock market always recover after major black swan events. They recovered and moved to a seven-year bull run after the dot com bubble burst in early 2000s. At the time, most analysts were predicting doom for the stock market.
Stocks also jumped in the 1930s after the end of the Great Depression. Most recently, they recovered and surged to record levels during the pandemic. Therefore, the ETFs will likely go into a panic mode for a while and then bounce back later this quarter.
Remember, the fear and greed index has crashed to the extreme fear zone of 11, while the VIX index has soared. Stocks often bounce back when there is a sense of fear in the market.
Read more: Buyer beware: Bond vigilantes may crash the S&P 500 index in 2025
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