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The Trump administration's aggressive new tariff policy has rattled markets, prompting fresh warnings about the downside risk facing the S&P 500. Mary Ann Bartels, Chief Investment Strategist at Sanctuary Wealth, said the latest trade measures represent a worst-case scenario and could drive the index down by as much as 20%.
President Trump announced Wednesday that the U.S. will impose a baseline 10% tariff on imports, with some rates climbing as high as 49%. Markets reacted swiftly, with the S&P 500 falling more than 4% Thursday morning to around 5,425 officially entering correction territory.
These tariffs were not priced into the market, which is why we're seeing such a strong risk-off reaction, Bartels wrote in a client note. She added that if the index fails to hold the 5,500 level, investors could see an additional 5% to 10% decline, potentially bottoming between 5,200 and 5,400.
According to Bartels, the current pullback has already reached 10%, and the risk of a deeper 15% to 20% correction remains high. She expects continued volatility through the second quarter.
She also suggested that the tariff strategy may be aimed at slowing the economy to lower interest rates and restructure national debt. If the policy holds, Bartels warned, it could lead the U.S. and global economy toward a broader slowdown or even a recession.
There's no place to hide but the fixed-income markets, she said, highlighting bonds, cash, and utilities as near-term safe havens.
With the labor market now a key focus, Bartels flagged Friday's upcoming payrolls report as critical in shaping the Federal Reserve's next move. If employment data weakens, the Fed may be pushed to cut rates sooner than expected.
Meanwhile, the Nasdaq Composite dropped over 5% Thursday, while the Dow Jones Industrial Average sank by 1,500 points, down 3.6%. Moreover, SPDR S&P 500 (SPY) over the past month, it's down around 4.5%, compared to a roughly 1.5% drop among all ETFs.
In the last six months, it's nearly flat, slipping about 0.1%, while the median for all ETFs dipped around 0.2%. However, over the past year, SPY has climbed more than 10%, easily topping the broader median gain of about 6%.
This article first appeared on GuruFocus.