Stocks haven’t fallen this much since 2020. Their recovery could look different this time.
The S&P 500 (^GSPC) just saw its worst week since COVID-19 brought the world economy to a halt in March 2020.
The benchmark index fell roughly 9% between March 31 and April 4 in a tariff-fueled sell-off. Similarly, as the pandemic spread throughout the United States, stocks lost 12.5% in five trading sessions in 2020. But market experts say stocks’ recovery will look different this time around.
While the S&P 500 returned to record highs just four months after the pandemic crash, experts don’t think investors should expect such a quick comeback in 2025.
“At this point, you’re beyond the swift rebound story,” Renaissance Macro head of economics Neil Dutta told Yahoo Finance. “This is a confidence shock, and so it’s going to take a little bit of time to get that back.”
The recent shock to markets has come from President Trump himself. With tariffs expected to hit their highest level in a century, consumers and businesses are feeling worse about the trajectory of the US economy. This has shaken investor confidence too, with multiple recent bids to rally off the market bottom failing in recent days.
The largest difference between this shock and the one that came with the pandemic is that the president has a potential “off” switch for the chaos this time. But, at this point, Trump has shown few signs of relenting.
“We need to see some evidence of some negotiation very, very quickly,” Fundstrat global head of technical strategy Mark Newton told Yahoo Finance on Tuesday when discussing what could stop the market’s free fall.
The recent market sell-off has been driven by fears that Trump’s tariffs could halt US economic growth. Some argue they could even bring a recession.
In prior periods, like the pandemic, when economic growth has slowed, the Federal Reserve has slashed interest rates. This time around, the Fed isn’t expected to immediately come to the rescue.
Tariffs are expected to slow growth but also boost inflation. With markets reeling last Friday amid a two-day 11% sell-off in the S&P 500, Fed Chair Jerome Powell said it was “too soon to say what the appropriate monetary policy response will be to these new policies.”
Stocks could be ‘dead money’
Markets have been moving on each incremental tariff headline as investors attempt to price in their impact. But for businesses, the process isn’t that easy. Deciding how to operate with 54% tariffs on exports from China, only for them to be turned into 104% tariffs a few days later, provides an additional cloud of uncertainty that could slow corporate investment.
Add in the fact that the economy had already been cooling, and it creates what Dutta describes as an expected slow “slog” of a recovery. This comes in opposition to the “v-shape” recovery seen in 2020, when things bounced back quickly.
At this stage, Dutta argues the market has worked to price in some level “of a growth scare” amid the 15% drawdown.
“The next leg of this will be if the scare becomes a reality,” Dutta said. “If you go down 15%, you’ve already set the table for the fact that equities will probably be dead money for several months. It’s going to take a while to get back to new highs. So there’s been a lot of damage that’s already been done.”
To Dutta’s point, about half of the Wall Street strategists that issue year-end forecasts tracked by Yahoo Finance now see the S&P 500 either ending flat or lower for full-year 2025.
A recovery this time around may have different winners and losers too. In 2020, ultra-low interest rates and stimulus-driven consumer spending led to some highfliers in the market, such as Peloton (PTON) and Etsy (ETSY). This time around, strategists aren’t expecting a similar prevailing risk-on vibe.
“We’re in a more normal monetary environment than we were five years ago,” Interactive Brokers chief strategist Steve Sosnick said. “Things like earnings, things like cash flows matter, being able to service debt matters. People are just not willing to take flyers on things. And so that in and of itself is a very big difference.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
