The US has experienced violent fluctuations recently, and the market's risk aversion sentiment has risen. Ed Yardeni, a well-known Wall Street analyst who has long been bullish on the US , has rarely turned cautious, believing that the US may have quietly entered a market. He pointed out that Trump's "Tariff 2.0" plan could trigger a Flash Crash like in 1962 or 1987, and has raised the possibility of a US economic recession to 35%. Although the short-term market volatility has intensified, he still believes that the long-term market is not dead, and the key lies in policy changes and the support of corporate earnings.
Is the US Decline Unstoppable, Has the Market Already Begun?
After the violent fluctuations in the US last week, the market welcomed another "Black Monday" this week, with the Dow Jones Industrial Average plummeting 890 points, the NASDAQ and the Philadelphia Semiconductor Index both falling more than 4%, and the S&P 500 Index also dropping 2.5%. Among them, the selling pressure on tech stocks was the heaviest, setting the largest single-day decline so far in 2022.
This market correction has led Ed Yardeni, the president of Yardeni Research, who is known as the "Oracle of Wall Street", to turn unusually conservative. He said:
We cannot rule out the possibility that the market may have quietly begun on February 20, the day the S&P 500 Index hit a new high.
Yardeni further warned that Trump's "Tariff 2.0" plan could re-enact the Flash Crash of 1962 and 1987, when the market would experience a violent plunge in a short period of time, but could then rebound quickly. He believes that this sharp decline may provide investors with opportunities to deploy capital at low prices, especially for some stocks that were originally overvalued and have recently experienced significant corrections.
The Fed Stands Idly By, Increasing Bullish Pressure in the Market
The market is affected not only by Trump's tariff policy, but also by the attitude of the Federal Reserve (Fed). Yardeni pointed out:
The market had originally expected the Fed to interest rates as early as June, but recent statements by Chairman Powell show that the central bank is still not in a hurry to loosen monetary policy.
"Without the Fed and the Trump administration intervening to support the market, the market bulls can now only rely on corporate earnings and the underlying economic fundamentals," Yardeni said directly, stating that the current market volatility is not simply a technical correction, but the result of policy variables and the shaking of investor confidence.
It is worth noting that he has raised the probability of a US economic recession and the market entering a market from 20% to 35%, while lowering the possibility of the market continuing until 2025 from 80% to 65%.
Tech Stocks Become the Hardest Hit, the Market Fear Index Soars
In this correction, tech stocks have borne the brunt:
- The tech giants have all experienced significant declines, with Tesla plummeting 15.4%, the largest single-day drop in five years; NVIDIA fell 5.07%, becoming the biggest drag on the Dow Jones Industrial Average; Apple plunged 4.85%, the largest drop in two and a half years.
- The Philadelphia Semiconductor Index (SOX) plummeted 4.85%, with all 30 component stocks closing in the red, and AMD plummeting 10.57%, while TSMC ADR was relatively resilient, falling 3.64%.
- The VIX index, known as the "fear index", soared to 29.56, up 26.5% in a single day, indicating a significant increase in market risk aversion.
However, the market is not entirely pessimistic. According to observations by MarketWatch columnist Michael Brush, many corporate insiders have started to buy energy, tech, banking, industrial, and biotech stocks at low prices, and some funds have already started to deploy capital.
Will the Market Continue in 2025? Policy is the Biggest Variable
Despite the short-term market turmoil, Yardeni still believes that the long-term structure of the US has not been disrupted, and the market in 2025 still has a chance to continue, but the prerequisite is that the trade war does not further escalate.
He estimates that the probability of the market continuing in 2025 is 65%, and in the long run, due to the productivity improvement driven by technology, the US has a 55% chance of continuing into the 2030s. However, if Trump's tariff war further expands, the US may face a deeper correction.
"This market correction has made it clearer to us the influence of policy on the market," Yardeni said. Investors should closely monitor the policy moves of the Fed and whether there are signs of easing in Trump's trade policy.
