MW The Trump administration says this is a 'healthy' stock-market correction. Can the S&P 500 avoid a bear market?

By Christine Idzelis

'The economy is clearly being stress-tested by the turmoil unleashed by Trump's tariff campaign and rapid-fire cuts in federal payrolls,' according to Yardeni Research

White House tariffs have some investors on edge that a trade war risks triggering a recession, potentially pushing U.S. stocks into a bear market after their recent correction.

But the U.S. Secretary of Treasury Scott Bessent said Sunday during an interview with NBC's "Meet the Press" that market corrections generally are "healthy" and that he wasn't worried about markets despite the recent selloff in equities. The S&P 500 SPX on Friday booked a fourth straight week of declines to mark its longest losing streak since August, while the Dow Jones Industrial Average DJIA saw its worst week since March 2023.

The S&P 500 closed in correction territory on March 13, with a correction defined as a 10% drop from a recent peak, according to Dow Jones Market Data. A bear market would begin with an even steeper plunge of at least 20%, with such a tumble potentially weighing on the economy.

"Very few bear markets have occurred without accompanying recessions," Yardeni Research said in a note Monday. But "if no recession looms, today's historically stretched valuations could be sustained."

Deutsche Bank Research analyzed S&P 500 corrections, finding that when one began, "12% of the time a recession had already started," according to an emailed note Monday from Jim Reid, the bank's head of global economics and thematic research. "On 56% of occasions no recession started around or within a year of the correction starting," he said, pointing to the chart below.

Asked about a recession, Bessent said during his interview that the U.S. may see an "adjustment" as the White House puts new policies in place. While there are "no guarantees" the U.S. won't fall into a recession, Bessent said he saw no reason it has to do so. He remarked that "massive government spending" was "unsustainable," saying the White House was now "resetting" and "putting things on a sustainable path."

Stock-market 'vigilantes'

According to Yardeni, "the economy is clearly being stress-tested by the turmoil unleashed by Trump's tariff campaign and rapid-fire cuts in federal payrolls." The firm cited "rapid corrections" in the Nasdaq and S&P 500, saying that stock market "vigilantes" are in effect "giving the administration a thumbs down."

The so-called vigilantes could send stock market prices tumbling into bear territory, "the negative wealth effect could cause a self-fulfilling recession," Yardeni warned.

The U.S. stock market was trading up Monday afternoon, with the S&P 500 rising a sharp 1.1%, the Dow gaining 1.2% and the technology-heavy Nasdaq Composite COMP advancing 0.9%, FactSet data show, at last check. The Nasdaq entered correction territory on March 6, according to Dow Jones Market Data.

Bessent told "Meet the Press" that stock market corrections are "normal." By contrast, what's not "healthy," he said, is "euphoric markets" that go "straight up."

U.S. stocks have been in a bull market for more than two years, with the S&P 500 soaring more than 20% in both 2024 and 2023. The S&P 500 has stumbled in 2025, down around 3% this year as of Monday afternoon.

The S&P 500 has struggled since its record closing peak on Feb. 19 as it's "pressured by the manufactured headwind of tariffs imposed on our major trading partners, which in turn resurrected the whisper of recession," CFRA's chief investment strategist Sam Stovall said in a research note Monday.

Check out: Stock-market bulls abandoned by Trump won't be saved by Jerome Powell and the Fed

Corrections tend to happen "when the stock market starts to discount a recession that doesn't occur," said Yardeni. "It is almost always attributable to a drop" in the forward price-to-earnings ratio, the firm wrote, "while forward earnings continue to rise (or at least don't fall)."

By contrast, bear markets typically occur "when a recession happens, sending both the valuation multiple and earnings expectations tumbling," according to Yardeni. "Only a few bear markets have occurred when no recession unfolded (i.e., in 1962, 1987, and 2022)," the firm's note says.

"The bulls still believe (hope) that President Donald Trump is using tariffs as a bargaining tool to negotiate lower tariffs with America's major trading partners," said Yardeni. "Some of them predict that if that's not the case, then Trump will back off in response to political pressure to do so from lots of constituencies that stand to be harmed by a trade war."

But other investors worry that "by the time Trump ever would relent, the economy would be in a consumer-led recession and the stock market surely would be in a bear market," said Yardeni.

Economic data released Monday showed retail sales in the U.S. rose in February, rebounding from January's decline but coming in weaker than Wall Street expected.

"We continue to bet on the resilience of the consumer, the economy, and corporate earnings, but we reckon that heightened recession fears will weigh on valuation multiples," said Yardeni. "It all depends on the often-unpredictable President, who frequently - and proudly - has referred to himself as "Tariff Man," reflecting his strong support for protectionist trade policies."

-Christine Idzelis

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March 17, 2025 15:23 ET (19:23 GMT)

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