Sell-off in line with norms
- S&P 500 fell 4.8.% Thursday in after tariff announcement
- Index closed below its mid-March correction threshold
- So far, correction has followed a “typical” path
But as is always the case when the market is making a big move, some context is called for. The S&P 500’s (SPX) nearly 5% decline was its biggest one-day loss since 2020, and it dropped the index back below the correction threshold it first hit on March 13. At the same time, the Cboe Volatility Index (VIX) closed at its highest level since last August:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Looking at things from a higher level, the track record of similar declines from record highs outlined in “Correction realities” suggested that the SPX would, more likely than not, fall below its March 13 correction close. Also, Thursday was the 15th trading day since March 13, and in all but two other cases, it took the index longer than that to reach its correction low. The median time to reach that low was 38 trading days, and the median additional decline (below the initial correction-day close) was -10.7%.
In other words, as unwelcome as the prospect of additional volatility may be, the market’s behavior—so far—has been in line with historical norms.
Although Wednesday’s tariff announcement may have filled in a few pieces of the trade-policy puzzle, the picture is far from complete. As Morgan Stanley & Co. analysts noted yesterday, while the tariffs—if left in place, as is—will “weigh meaningfully on [economic] growth,” the prospect of negotiations (as well as court challenges to at least some of the tariffs) means the landscape could look much different in the near future.1
Finally, of the 14 corrections following record highs analyzed in “Correction realities,” only five extended into -20% bear markets. And one year after the beginning of the 11 corrections that lasted more than one day, the SPX was higher seven times (+18.1% median return) and lower four times (-10.2% median return.
Market Mover Update: On Thursday, the 10-year Treasury yield fell to its lowest level (4%) since October 16, 2024—but rebounded to close at 4.05%. June gold futures (GCM5) sold off sharply, falling more than 1% from Wednesday’s record high of $3,166.20.
Today’s numbers include (all times ET): Employment Report (8:30 a.m.).
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1 MorganStanley.com. Tariff Takeaways. 4/4/25.