Forex Analysis & Reviews: 24.03.2025 - S&P 500: from euphoria...

24.03.2025 02:55 PM

S&P 500: from euphoria to collapse

The wave of optimism that swept through US stock markets following Donald Trump's re-election turned out to be short-lived. Euphoria quickly gave way to a deep correction amid escalating trade conflicts.

The introduction of new tariffs on goods from China, Canada, and Mexico triggered panic among investors. On March 3, US markets experienced the largest sell-off of the year, with the S&P 500 erasing all post-election gains, sliding back to 5,660.

Fundamental risks deepen the decline

The outlook for the US economy continues to worsen. The Atlanta Fed slashed its forecast for real GDP growth from +2.3% to -2.8% YoY. Meanwhile, warnings of an impending recession are becoming more frequent.

Warren Buffett has openly criticized Trump's trade policies, calling tariffs a "tax on consumers." Jeremy Grantham predicts a collapse of US stock indices, while Ray Dalio goes as far as to describe the economic outlook as a potential "heart attack," citing the growing budget deficit and mounting debt crisis.

Technical picture: support on the brink, trend under threat

On Monday, the S&P 500 is trading near 5,770, confirming a significant correction from its recent record highs. The index has broken below the upward trendline formed in January and dropped beneath the critical 5,720 support level, which now acts as resistance.

Current key technical levels:

Support: 5,600 – a psychologically important level. A break below it could open the way to 5,450 and 5,300.

Resistance: 5,720 (near-term), followed by 5,840.

Indicators: the RSI is heading into oversold territory, signaling a possible short-term bounce. However, MACD and moving averages still confirm a bearish momentum.

Trading ideas:

Short-term buy from 5,600 targeting 5,720, with a stop-loss at 5,550.

Sell on bounce from the 5,720–5,740 zone targeting 5,450, then 5,300 – particularly if negative news flow continues.

Mid-term strategy: hold short positions with a target of 5,300 and below, if trade tensions escalate and macroeconomic data deteriorate.

Fundamental risks: default fears and inflationary pressures

The main driver of the current correction is a fundamental shock caused by the sudden shift in US trade policy. The Trump administration's renewed protectionist push has already led to higher import costs, intensifying inflationary pressures.

According to Yale University, tariffs are costing the average American around $2,000 per year – effectively functioning as an invisible tax.

At the same time, the Federal Reserve is caught in a bind between a slowing economy and the need to contain inflation. GDP contraction, a ballooning budget deficit (now at 7.5% of GDP), and the possibility of tighter monetary policy are all contributing to investor anxiety.

The capital market is increasingly seen as overheated, especially given high debt levels and falling corporate earnings. Much of the recent bull market has been driven not by solid fundamentals, but by the Fed's ultra-loose monetary policy.

S&P 500 enters the danger zone

The combination of technical weakness and mounting fundamental risks leaves the market vulnerable to further declines. Over the coming weeks, the market's fate will likely be determined by new trade decisions from the White House and the Fed's response.

Traders should proceed with extreme caution – we're entering a phase of elevated turbulence.

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*El análisis de mercado publicado aquí tiene la finalidad de incrementar su conocimiento, más no darle instrucciones para realizar una operación.

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