Tariff-driven Wall Street Pain Sparks Investors to Weigh Gloomy Scenarios

On April 8, 2025, Wall Street witnessed a staggering slide in U.S. stocks, driven primarily by concerns over President Donald Trump’s sweeping tariffs. These developments have incited fears of a prolonged global trade war and cast a shadow over corporate profit outlooks, leading investors to contemplate even darker scenarios for the market.

Significant Market Drops

On that fateful Monday, the benchmark S&P 500 index was down over 4% at one point, a drastic decline that underscored the anxiety surrounding the ongoing tariff battle. The index ended the day at 5,062.25, reflecting a drop of more than 17% from its February 19 all-time high of 6,500. Analysts like Matthew Maley, chief market strategist at Miller Tabak, indicated that a decline to as low as 4,300 was indeed possible, while a further fall to the 4,000 mark or lower could not be ruled out.

Maley also pointed out that the current market turmoil goes beyond mere tariffs, suggesting that it reflects a correction as which the market aligns itself with its underlying fundamentals. He remarked, “This is more than tariffs. This is the process of the market falling back in line with its underlying fundamentals.”

Examining Worst-Case Scenarios

The recent selloff, which has been labeled one of the steepest in history, evokes fears of market conditions akin to those following the bursting of the dot-com bubble in 2000. Analysts predict that the S&P 500 could plunge by nearly half from its historical peak, with some analysts warning of a “SuperBear” scenario where the index might plummet to around 3,100. Such dire predictions are often predicated on assumptions of a recession that slashes annual corporate profits by approximately 15% alongside disruptions within credit markets.

The Speed and Intensity of Recent Declines

The market’s decline has drawn comparisons to intense downturns experienced during the COVID-19 pandemic and the financial crisis of 2008. According to Keith Lerner, co-chief investment officer of Truist Advisory Services, the S&P 500’s combined decline of 10.5% over two days last week was the fourth largest since 1950. The largest two-day drops occurred during substantial market crises: during March 2020’s COVID-19 fallout, in November 2008’s financial crisis, and in 1987 during “Black Monday.”

Volatility and Sentiment on Wall Street

Despite the volatility, the S&P 500 concluded Monday only 0.2% lower, indicating that traders were grappling not just with losses but also with potential rebounding opportunities. This uncertainty was reflected in the Cboe Volatility Index (VIX), which registered its highest closing level in five years, signaling heightened anxiety among investors.

Some strategists, including those from JPMorgan, laid out a year-end target for the S&P 500 of around 4,000 in a “bear case,” while others like Evercore ISI predicted a bear case target of 4,500. The “SuperBear” scenario outlined by Evercore suggests a catastrophic downward movement to 3,100, reinforcing the troubling sentiment within the market. These predictions assume the absence of any tariff relief and project a bleak earnings landscape through 2026.

Current Valuations and Earnings Concerns

One major issue for investors is the current valuation levels, which are seen as moderating from historically high levels. The forward price-to-earnings (P/E) ratio of the S&P 500 has declined from 22.4 times expected earnings in February to 18.4 as of early April. While this is in line with the average for the past decade, it still hovers above the longer-term 40-year average P/E ratio of 15.8.

Concerns regarding future earnings also loom large. Despite a projected rise of 10.4% in S&P 500 earnings for 2025 according to an LSEG IBES report, historical data indicates that during recessions, corporate earnings typically decline by an average of 24%. Given a 50% probability of a recession, experts caution that equities could see further declines between 20%-25%.

Conclusion: The Outlook Ahead

Nevertheless, even amidst such forecasts of potential downturns, not all analysts regard these scenarios as likely. Evercore strategists, for example, predicted a more optimistic year-end target of 5,600 for the S&P 500, signifying a potential 10% gain from current levels. Additionally, any news hinting at tariff relief could catalyze a market turnaround. On Monday, stocks momentarily spiked on the speculation that Trump was considering a 90-day pause on tariffs; however, this was swiftly denied, leading to further declines.

“The only thing that’s going to help both sentiment and the market’s direction is going to be some easing of the entrenched tariff views,” stated Michael James, managing director of equity trading at Rosenblatt Securities. The market’s future trajectory appears contingent on policymakers’ willingness to address tariff issues and provide a clearer path ahead for investors.