Donald Trump's return to the White House sparked a wave of optimism in the markets. Analysts and investors agreed that 'Trump 2.0' would be a blessing for U.S. equities. Predictions pointed to a new cycle of global stock market leadership. But it took only 22 days to generate a change in sentiment, causing the SP500 to lose 10%, marking one of the fastest corrections in recent history, a movement that resembles more the beginnings of a bear market than a simple technical correction.
From Trump's own circle, unbelievable explanations have been given, stating that the stock market decline was part of the president's strategic plan. A claim hard to digest coming from someone who, in his first term, celebrated each new Dow Jones record in capital letters.
In the absence of a clear explanation, several culprits emerge. On one hand, the 'Magnificent 7', with declines nearing 14%, have dragged down the capitalization-weighted indices. On the other hand, crypto assets are experiencing times of high volatility and sharp declines, reflecting the shift in investor sentiment in an environment of decreasing liquidity and risk aversion. However, reducing the decline to just these two causes is simplistic. There are more structural factors at play.
Trade uncertainty has returned to the scene. The possibility of Trump escalating a tariff war (with average tariffs that could multiply by five) worries executives, small business owners, and consumers because, beyond stock market volatility, what is really at stake is the 'wealth effect.'
When financial assets fall, consumption also decreases. And in an economy like that of the United States, that is dynamite. According to BofA, household equity wealth may have decreased by $3 trillion just in the first quarter of 2025. A direct blow to the heart of economic growth.
Now, is there really fear in the market? The answer is not so clear. Despite the bearish tone, investment flows tell another story. Amid the correction, equity ETFs recorded net inflows of $57 billion, the highest weekly figure in 2025, showing that again, the dip is being bought.
This leaves us with the dilemma of sensing whether we are facing a simple technical correction or the beginning of a bear market. Since 1929, there have been 30 corrections of 10% or more, but only 16 led to a bear market. To date, the risk appetite indicators do not signal a clear opportunity to buy against the tide: there are no signs of panic, but there is evident weariness in market sentiment.
Perhaps this correction is just a logical reevaluation after years of exuberance. Or maybe we are at the beginning of a deeper adjustment, where the United States loses part of its stock market exceptionalism compared to Europe or China. Perhaps the market is simply digesting a new geopolitical and technological context.
Given these circumstances and in an environment where narratives change every week, one must know how to filter out the noise. Declines may hide opportunities, but also hidden risks. In a high volatility environment, macroeconomic data, corporate earnings, and investment flows remain our best references for understanding the market.
Trump might have a plan... or maybe not. But what is clear is that the market is already following its own course, and it doesn't stop to wait for anyone.
What to watch for this week?
Next week, all eyes will be on the Federal Reserve, which will announce its second interest rate decision of the year. It is expected to keep rates unchanged, so the real interest will focus on the 'updated Dot Plot' and Jerome Powell's press conference, in search of clues about growth projections and comments on tariffs.
Moreover, the uncertainty generated by Trump's statements on tariffs and the escalation of the trade war has cooled market sentiment, affecting growth expectations.
On the other hand, investors will also be paying attention to the quarterly results of two big names: Nike and FedEx, which could provide hints about the health of the economy.
This content is for informational and educational purposes only and should not be considered as investment advice or a recommendation to invest. Past performance is not an indication of future results. CFDs are leveraged products and carry a high risk to your capital.
Investment in crypto assets is not regulated in some EU countries or the UK. There is no consumer protection. Your capital is subject to risks.