Don’t Expect Trump or Powell to Bail Out Investors This Time as Stock Market Hits ‘Danger Zone’
The landscape of the U.S. stock market is changing, and it has entered what many analysts are beginning to refer to as the “danger zone.” After three solid weeks of decline, the S&P 500 index has decisively broken below its critical 200-day moving average for the first time since November 2023. Investors might be looking for a lifeline, but they shouldn’t hold their breath waiting for President Donald Trump or Federal Reserve Chair Jerome Powell to jump in and provide a safety net.
Understanding the 200-Day Moving Average
The breaking of this crucial threshold is significant. Historically, when the S&P 500 dips below its 200-day moving average, there has been a tendency for the Federal Reserve or the White House to intervene and restore investor confidence. Back in November 2023, after an intense market correction where Treasury yields topped 5%, the Fed hinted at more aggression in cutting interest rates. This instigated a strong rally that powered stocks to close the year on a high note.
This time, however, sentiment is markedly different. Investors are considerably less optimistic about receiving help from government officials. According to George Cipolloni, a portfolio manager at Penn Mutual Asset Management, there is little reason to foresee rescue operations from either Trump or Powell. As articulated in his interview with MarketWatch, “I think Secretary Scott Bessent was pretty clear last week about that. I’m not sure what kind of decline will get them to move.”
The Current Economic Environment
Inflation has been stubbornly persistent, effectively tying the Fed’s hands. While many investors entered 2025 with hopes that Trump might reverse his stance on tariffs or policies perceived as antagonistic, recent rhetoric has dashed these expectations. Posturing from the White House has ramped up concerns, particularly when Bessent denied the existence of a “Trump put” to protect stock values while discussing a necessary “detox period” for the U.S. economy.
Trump’s own comments add another layer of uncertainty as he did not dismiss the possibility of a recession in a recent interview with Maria Bartiromo on Fox Business. Instead, he mentioned a “period of transition” for the economy, a phrase that has sparked fear and contributed to the unwelcome sell-off on Wall Street. The S&P 500 fell 2.7%, or 156 points, closing this past Monday at 5,614.56, decisively below that critical 200-day moving average of 5,734.77.
What Does This Mean for Investors?
The implications of breaking below the 200-day moving average are extensive. Investors closely monitor this technical benchmark as it indicates momentum for the long-term trend of the market. If history is any guide, once the S&P 500 breaches this level, “nothing good happens below the 200-day,” as the saying on Wall Street goes. Sell-offs typically accelerate, and the volatility increases significantly.
According to Callie Cox, chief market strategist at Ritholtz Wealth Management, “selloffs accelerate and swings get dramatically bigger in the danger zone.” Historical data shows that since 2000, the S&P 500 has dropped below the 200-day moving average during downturns 18 times. Of those occurrences, 11 saw rapid rebounds, while seven continued to drift downward, suggesting that a bullish pattern is at risk of unraveling.
Potential for Further Decline
Many market participants are bracing for more downturns. As noted by Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, “A big break below 5,700, without Trump policy moderation, signals more downside risk.” Despite some minor, temporary encouragement from Powell indicating there were no signs of imminent recession, the Fed has officially retained a wait-and-see stance.
In the past, both Trump and Powell have exhibited tendencies to pivot their policies in response to stock market turmoil. In fact, during 2018’s market panic driven by Trump’s trade war with China, the administration eventually adopted a more conciliatory approach and finalized agreements that supported market recovery. Today, however, with new tariffs looming and aggressive policies still at play, many believe that the “Trump put” for stocks now resides at a much lower threshold than previously anticipated, yet still exists and could influence future decisions.
For prudent investors, this points to a need for vigilance and a reevaluation of strategies amidst rising uncertainty. The market’s “danger zone” is not a place to tread lightly, and while historical patterns may provide some insights, the current economic landscape is layered with complexities that suggest a break from previous trends. Prepare for potential turbulence ahead – it’s clear that neither Trump nor Powell is eager to intervene this time around.
