“A reasonable base case for the US economy is growth trending in a 1.5%-2% range over the next year or so, down from about 2.5% over the past few years, based on tariff implementation,” Dennis DeBusschere of 22V Research wrote in a note to clients.
At the same time, the the mega-cap tech stocks that have largely driven the S&P 500’s more than 50% gain over the past two years are caught in a selloff, as investors grow doubtful about the immediate future of artificial intelligence and, more broadly, retreat from riskier growth assets.
Meanwhile, sell-side strategists are warning about rising volatility in equities, with Morgan Stanley predicting the S&P 500 will drop as much as 5% to 5,500 in the first half as corporate earnings suffer from tariffs and lower fiscal spending. JPMorgan Chase & Co. and RBC Capital Markets have also tempered their bullish calls for 2025.
Investors’ rotation away from risk is on display in the S&P 500’s sector performance this year. Consumer discretionary and information technology stocks, which typically thrive when the economy is healthy, are the biggest decliners in 2025, while defensive groups such as health care, real estate and consumer staples leading the way.
The tariff noise has also widened the benchmark’s underperformance relative to its global peers, with US equity indexes lagging those in Europe, China, Mexico and Canada.
“The bears are in control right now and every time the market tries to bounce we see another violent leg down,” Sarhan said. “If this continues, fast forward a few more days, we are looking at a complete change in environment from a bull market to a bear market.”