Don’t Expect Trump or Powell to Bail Out Investors This Time as Stock Market Hits ‘Danger Zone’

The S&P 500 index has entered a precarious phase, plunging below its 200-day moving average for the first time since November 2023. This decline marks the culmination of three consecutive weeks of stock market sell-offs, triggering alarms across Wall Street. Historically, when the S&P breached this critical technical threshold, it prompted intervention from either the Federal Reserve or the White House to instill confidence among investors. However, the scenario has changed drastically—investors are now bracing themselves for a different outcome.

Historical Context of Market Breaches

In November 2023, after a significant market correction exacerbated by rising Treasury yields, comments from the Federal Reserve hinted at potential interest rate cuts moving sooner than expected, leading to a sharp recovery in stock prices. However, the current climate bears little resemblance to that moment of rescue. George Cipolloni, a portfolio manager at Penn Mutual Asset Management, underscores that there are very few expectations for intervention this time. He remarked, “I’m not sure what kind of decline will get them to move,” indicating a sense of resignation among investors.

Inflation and Market Sentiment

The primary reason for the current inaction is the stagnation in progress regarding inflation management, which has effectively limited the Fed’s capacity to respond. Given that the market previously thrived on the assumption that either President Donald Trump or Fed Chair Jerome Powell would quickly amend troublesome policies to stabilize stocks, the recent rhetoric from the administration has quashed such hopes. In a recent address, Treasury Secretary Scott Bessent categorically denied the existence of a “Trump put” for the market. His statement conflicts with the notion that policymakers would swiftly reverse fiscal strategies, such as tariffs, to buoy stock prices.

The administration’s stance grew more ambiguous when President Trump himself admitted, in an interview with Maria Bartiromo on Fox Business, that recession was a possibility and referred to a “period of transition” for the American economy. His acknowledgement of potential economic challenges further exacerbated investor fears, triggering yet another wave of selling pressure in the markets.

The Technical Breakdown

This week, the S&P 500 closed down by 2.7%, or 156 points, settling at 5,614.56—a notable dip below its critical moving average position of 5,734.77. Traders and analysts closely monitor this metric as a long-term trend indicator; falling below it raises alarms of a possible transition from a bull market to a bear market. Callie Cox, chief market strategist at Ritholtz Wealth Management, commented succinctly, “Nothing good happens below the 200-day,” asserting that these downturns often precipitate increasing volatility and sharper market swings.

Historical data reveals that the S&P 500 has crossed the 200-day moving average during sell-offs eighteen times since 2000. Of those instances, eleven saw stocks rebound decisively. Conversely, the remaining seven resulted in further declines, leading to fears that the market could shortly experience more catastrophe.

Fears of Extended Declines

Market watchers, such as Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, warn that continued divergence below the 5,700 threshold—without any moderating policy changes from Trump—could exacerbate downside risk. Recent comments from Powell had previously raised hopes of a more stable economic outlook, yet these were overshadowed by the Fed’s ongoing official stance of maintaining interest rates while market volatility increases.

Administration’s Mixed Signals

Despite past instances where Trump moderated his approach to tariffs amid stock market routs, such as during the 2018 trade war with China, the current administration appears to be steadfast in implementing its tariff agenda. The belief that Trump holds a “put” for stocks—that is, a threshold at which he would intervene—has been called into question. Mark Gibbens, an investment strategist at BOK Financial, posited that while such a “put” may exist, it is likely set at a level much lower than initially presumed this year.

Conclusion

As the S&P 500 tumbles deeper into the “danger zone,” the absence of previously expected interventions from the Federal Reserve and the Trump administration creates a unique and alarming landscape for investors. With inflation capturing headlines and sentiment souring, many are left to ponder the potential implications for future market performance. It remains to be seen how policymakers will navigate these turbulent waters moving forward.