Historic Occurrence in the Stock Market: sixth instance in 75 years, suggesting potential significant shift in market trends during the latter half of 2025.
The stock market has been a rollercoaster ride in recent times, with the S&P 500 experiencing significant fluctuations due to various economic factors. One of the key events that have influenced the market's trajectory is the increase in U.S. import taxes, a result of President Trump's tariffs. These tariffs have pushed the average tax on imports to its highest level since 1936.
On a positive note, stocks rallied after President Trump announced a 90-day pause on reciprocal tariffs, offering a glimmer of hope for stabilisation in the market. However, the market's response may not be as dramatic if the U.S. manages to strike numerous trade deals. Conversely, a failure to materialise these deals and the reinstatement of reciprocal tariffs could lead to a sharp fall in stocks.
Economic analysts, such as those at Morgan Stanley, have predicted potential repercussions of these tariffs. They expect inflation to reaccelerate, potentially reaching 3.5% in the third quarter. Moreover, Morgan Stanley economists have revised their forecast for U.S. GDP growth due to tariffs, predicting a 1.5% increase in 2025 and a 1% increase in 2026.
The S&P 500 has shown a tumultuous performance, with a 19% decline by April 8, 2025. However, following President Trump's announcement of severe tariffs on the same date, the S&P 500 advanced 20.5% in the two months following. It's worth noting that such a two-month return above 20% is a rare occurrence, happening only six times in the last 75 years.
The question remains whether this rebound will continue. Historically, after a two-month gain exceeding 20%, the S&P 500 has an average return of 31% in the next year. However, this trend extends to the next six months as well, with an average return of 16%.
Analysts are cautious about the near future, with some suggesting that the stock market may have priced in no substantial increase in the average tariff rate. This implies little chance of upside and a significant risk to downside in the short term.
If tariffs do cause a meaningful uptick in consumer prices, it could lead to a situation known as stagflation, a fall in the stock market in the context of slower economic growth. This is a concern for many economists, who predict that the tariffs imposed to date will slow economic growth.
Despite the lack of specific information regarding historical analyses on the DAX development in the second half of 2025, it's clear that the U.S. stock market is navigating challenging waters. The S&P 500's boomerang performance in the first half of 2025 underscores the market's volatility, making it crucial for investors to stay informed and adaptable.
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