S&P500: Reasons of DeclineThe S&P 500 has been experiencing a clear downtrend, characterized by a progression of lower highs and lower lows meaning that each attempt at a rebound is met with increased selling, preventing the market from establishing a meaningful recovery.
The current formation suggests that bearish sentiment is still dominant, with investors possibly looking for further downside support levels before a potential reversal. Until we see a shift in this downtrend structure, such as series a higher lows followed by a higher highs, the market is likely to remain under pressure. Another confirmation would be a breakout from line that connects ATH and 2 lower highs.
Main factors in play:
Geopolitical instability affecting investor confidence.
Tariffs and trade wars increasing costs for businesses and consumers.
Weakened global alliances leading to market uncertainty.
Rising economic risks impacting corporate earnings and economic growth expectations.
Protectionist policies can backfire
U.S. tariffs negatively impact the economy by increasing costs for businesses and consumers, disrupting trade relationships, and fueling economic uncertainty. Recent tariffs on imports from trading partners like Mexico and Canada raise prices on goods such as automobiles, energy, raw materials, and food, leading to inflationary pressures that hurt both companies and consumers. Businesses reliant on imported components face higher production costs, forcing them to either absorb the costs, reducing profitability, or pass them on to consumers, decreasing demand. Retaliatory tariffs from affected countries further compound the issue by making U.S. exports less competitive abroad, harming industries like agriculture, manufacturing, and technology. The threat of supply chain disruptions and escalating trade conflicts creates market volatility creating discouraging investment climate and prompting sell-offs in equities. Additionally, fears of a broader economic slowdown due to weakened global trade relations further erode investor confidence, contributing to stock market declines.
Impact of recent geopolitical shift
The S&P 500 likely fell in response to the geopolitical instability and uncertainty stemming from recent events. Investors tend to react negatively to signs of weakening U.S. leadership on the global stage, especially when it leads to disruptions in alliances and strategic partnerships that have historically provided economic and military stability. Seeing the U.S. aligning with autocracies while European and NATO allies are preparing for a future without American leadership introduces concerns about global security and long-term economic consequences. Furthermore, the perception that adversaries of free world may become more aggressive, potentially escalating conflicts, obviously adds to market anxieties. Investors fear that heightened geopolitical tensions could lead to disruptions in trade, energy markets, and global supply chains, all of which can negatively impact corporate earnings and economic growth. As a result, market participants likely sold off equities in favor of safer assets, leading to a decline in the S&P 500.
This demonstrates how political decisions can have far-reaching effects on financial markets and beyond.
