S&P 500 nears correction as tariff risks mount

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A bounce in United States stocks on Wednesday proved temporary, as anxiety about the economic impact of a trade war offset optimism over data showing U.S. wholesale inflation stagnated in February.

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The S&P 500 fell 1 per cent as of 11:35 a.m. in New York, reversing a bounce on Wednesday. The technology-heavy Nasdaq 100 Index declined 1.6 per cent. The S&P 500, at about 5,539, is steps away from 5,529.74 that would mark a 10 per cent decline from its February record high, the technical threshold for a correction.

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U.S. stocks have been struggling to regain its footing after snapping its two-year long uptrend earlier this week. Chart watchers say the S&P 500 Index needs to recapture its 200-day moving average, which currently sits near 5,738. Some technical charts also show the S&P 500 is already at oversold levels. The index’s 14-day relative strength index is hovering at 30, a level that is often considered a technical signal that a selloff has gone too far.

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Investor sentiment is souring, and that could be good news for Wall Street traders betting on a rebound in the S&P 500. The closely watched bull-bear ratio from the American Association of Individual Investors survey fell to 0.3 in the week through Wednesday, the lowest level since September 2022. The last time the indicator was this low before then was in 2009, in the aftermath of the global financial crisis. Those prior instances have coincided with stretches of bear-market bottoms in U.S. stocks.

Souring sentiment is a sign of just how much Donald Trump has rattled Wall Street’s once prevalent bull-market faith by moving to roll back the globalization that’s powered the world economy for decades and slash the government spending that’s provided a steady jolt of stimulus at home.

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The S&P 500 has wiped out US$5 trillion in market capitalization since that peak in February on concerns that President Trump’s trade policies would stall economic growth. The Nasdaq 100 has plunged more than 10 per cent from a high last month as investors questioned lofty valuations of the biggest tech stocks.

Sentiment took a further hit Thursday after Trump threatened to impose a 200 per cent tariff on wine, champagne and other alcoholic beverages from France and elsewhere in the European Union, the latest escalation in a brewing trade war.

“Another day of tariff uncertainty is weighing upon markets once again,” Steve Sosnick, chief strategist at Interactive Brokers, wrote in a note. “That said, over this week’s sessions, we have found support right around the level that would represent a 10 per cent correction for the S&P 500.”

Several Wall Street strategists including at Goldman Sachs Group Inc. and Citigroup Inc. turned more cautious on U.S. stocks this week. However, JPMorgan Chase & Co. strategists said equities were pricing in a recession risk much bigger than credit markets, leaving room for a positive surprise.

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Among single stock movers, Intel Corp. shares jumped after the chipmaker named Lip-Bu Tan as its chief executive officer. On the other hand, American Eagle Outfitters Inc. sank after the apparel retailer forecast lower-than-expected operating income. And Deliveroo shares fell the most in more than two years after the UK food delivery firm forecast earnings that disappointed investors.

— With assistance from Jessica Menton.

Bloomberg.com

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