S&P 500 correction, but futures rise as government shutdown set to be avoided

The S&P 500 closed more than 10% lower than its February peak on Thursday, a technical correction of the market, as volatility remained and trade war rhetoric peaked again.

Investors reacted to tough talk from the EU – with 50% tariffs on US whiskey – and President Trump – threatening a 200% levy on imports of European alcohol products including Champagne.

“In only a few weeks, the broader market has gone from record highs to correction territory,” Adam Turnquist at LPL Financial told Bloomberg. “Tariff uncertainty has captured most of the blame for the selling pressure and is exacerbating economic growth concerns.”

The index’s first correction in around two years sent investors fleeing to havens and gold reached a new record high of $2,994 an ounce for spot gold, while futures put the price above $3K.

With a 1.4% drop for the S&P 500, a 1.9% drop for the Nasdaq, and a 1.3% drop for the Dow Jones Industrial Average, it was a challenging day for traders, but futures are up 0.8% Friday on news that the US government may avoid shutdown with support from Democrats.

And the correction does not necessarily mean entry into a bear market, with Bank of America strategist Michael Hartnett writing in a client note: “We say this is a correction, not a bear market in US stocks. Since equity bear threatens recession, fresh declines in stock prices will provoke flip in trade and monetary policy.”

A bear market would be a 20% drop from a recent high and while there is ongoing uncertainty about how tariffs might play out – JPMorgan’s Jamie Dimon is among those expressing concerns -  potentially tipping the US economy into recession, there are hopes that the Fed may choose to resume rate cuts next week or at least give strong signals of its plans.