Wall Street strategists say the worst is over on stock selloff

Traders battered by one of the fastest US stock slides on record may be poised for a reprieve.

Equity strategists at firms including JPMorgan Chase & Co., Morgan Stanley and Evercore ISI are advising clients that the worst of the recent downturn is likely behind them, citing metrics from investor sentiment and positioning to favorable seasonality.

Major American stock indexes bounced back Monday after reports that President Donald Trump plans to take a more targeted approach with the tariffs he will roll out on April 2, easing some concerns that his escalating trade war will fan inflation and stall the economy.

Those worries — along with lingering fears that the artificial intelligence-fueled Big Tech rally had run too far — had knocked stocks down sharply since mid-February, sending the S&P 500 Index into its seventh-fastest 10% drop from a record high in nearly a century and erasing over $5.6 trillion from the index’s market capitalization, according to data compiled by Bloomberg.

JPMorgan said the bulk of that came from a cohort of momentum stocks, the 50 names with the strongest price performance in the S&P 500, which had erased two years of gains in three weeks. But the selloff also eased the crowding in the segment that had built up during the previous rally.

“As a result, the risk of another violent unwind should be low in the short term,” JPMorgan strategists led by Dubravko Lakos-Bujas said in a March 21 note to clients.

On Monday, pockets of the market that were hardest hit recently saw the biggest recoveries. A gauge of so-called Magnificent Seven stocks jumped 3.4%. Tesla Inc. soared 12% in the largest one-day gain since Nov. 6, the session directly after Election Day. The broader S&P 500 advanced 1.8%.

Morgan Stanley’s Michael Wilson joined Lakos-Bujas in striking a more optimistic tone, indicating that seasonal factors, a falling US dollar, Treasury yields, and ultra-pessimistic sentiment and positioning are paving the way for a “tradeable rally in the near term.” And at Evercore ISI, chief equity and quantitative strategist Julian Emanuel said rhetoric on the economy by the Trump administration “has reset the bar such that sentiment is so negative right now.”

“We think the two steps backward portion we lived through is in the process of resolving itself, and you’re likely to get three steps forward toward higher prices,” he said.

The selloff has left Wall Street conflicted about whether the time has come to buy the dip, however, as the market continues to be shadowed by trade-policy uncertainty and concerns that the enthusiasm about artificial intelligence pushed tech valuations too high. While strategists see a period of calm ahead, they’ve largely avoided giving clients a resounding all clear to pile into US equities for now. 

That’s in significant part because Trump’s planned announcement of universal, reciprocal trade tariffs next month may again alter investors’ expectations about the economic fallout. 

Evercore’s Emanuel said it’s the next catalyst for the market. Morgan Stanley’s Wilson says he’s also watching employment and manufacturing data along with earnings revisions as “signposts for a more durable rally.”

At 22V Research, chief market strategist and president Dennis DeBusschere on Monday said that market internals have improved in a way that suggests the US economy is not moving into a recession. The unusually low investor sentiment — given the still solid economic data — suggests “stronger than normal returns” in the one-, three-, and six-month periods if the impact of tariffs wind up being minor. But like others, he’s waiting for more clarity around the levies to firm up his views.

“Assuming tariffs are not a major headwind to growth, fundamental factors should rebound throughout 2025,” he said. But “our conviction that tariffs will not lead to deeply negative outcomes is low, which is why we will wait until the April 2 announcement to press this longer-term view.”