Investors are asking the same question on repeat—like a child in the backseat:
“Are we there yet?”
After one of the sharpest drawdowns in recent history, the S&P 500 briefly slipped into bear market territory on Monday, down more than 20% from its February intraday peak. So, is this the time to buy?
It may sound naïve. Trump’s aggressive tariffs are hitting the economy hard and escalating fears of a global recession. Perhaps more damaging than the tariffs themselves is the erosion of confidence in U.S. policymaking—with levies on uninhabited islands and inconsistently applied reciprocity, investors are losing trust in the system. In an environment ruled by fear, equity appetite disappears.
Some contrarian investors are taking notice. But is fear truly peaking? And just as important—what could actually trigger a rebound?
Sentiment Is Cracking
Three weeks ago, I laid out a framework to evaluate whether the market was approaching a bottom. Some indicators were flashing “buy” at the time, but I remained cautious. Today, conditions have deteriorated further.
A recent (non-scientific) survey from the American Association of Individual Investors showed that bearish sentiment among retail investors is now at its highest since the 2008 bottom—a striking measure of market anxiety.
As the banker Nathan Mayer Rothschild once put it:
“Buy when there’s blood in the streets—even if it’s your own.”
What Could Break the Downtrend?
1. Tariff negotiations could shift.
Talks are now underway with more than 50 countries. Even minor concessions could be framed as significant progress, potentially serving as justification to reverse tariffs in some cases.
2. Other countries may choose not to retaliate.
If U.S. trading partners back off and instead offer improved terms, the administration might respond by rolling back tariffs. While China has pushed back strongly, others are still considering their options.
3. The Federal Reserve could intervene.
In past episodes of market panic, the Fed stepped in by purchasing risk assets like mortgage-backed securities and corporate bonds. A rate cut remains possible as growth slows, but tariff-driven inflation may limit the Fed’s willingness to act aggressively.
Moreover, the central bank may avoid bailing out markets from deliberate policy risks, as doing so could undermine its image of independence.
A Market Prone to Whiplash
Monday brought a real-time test of market sensitivity. A rumor that tariffs might be paused for 90 days triggered a 6% intraday rally—only for stocks to fall again once the White House labeled the report as “fake news.” Even Trump’s subsequent announcement of a 50% tariff hike on China barely moved markets.
That tells us two things:
The market could be set up for a bounce, even if a sustained recovery is still out of reach.
Don’t Mistake a Rally for a Recovery
Sharp, short-term rallies are common during periods of fear. Historically, after back-to-back major down days, equities often post gains over the following month.
But bear markets are often defined by powerful, unsustainable rallies. One example: the 27% rally in late 2008, which eventually gave way to another leg down before the true bottom in March 2009.
Without a catalyst, equities tend to drift lower until a recession either begins or is clearly avoided. A durable recovery needs something that signals recession risk is off the table.
What's Next?
As earnings season kicks off, CEOs may issue more direct warnings about the damage tariffs are causing—potentially triggering another wave of selling.
That said, a significant amount of bad news may already be priced in. More risk-tolerant investors may begin re-entering the market cautiously, while still acknowledging that stocks could fall further if tariffs hold and recession fears intensify.
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All posts by Sellsmart are for informational purposes only. Final investment decisions should be made with careful judgment and at the investor’s own risk.
The content of this post may be inaccurate, and any profits or losses resulting from trades are solely the responsibility of the investor.
Core16 may hold positions in the stocks mentioned in this post and may buy or sell them at any time.
