Markets Update March 2025 - Is there a threat of a sustained bear market? Clear answer: No!

The major US stock markets have recorded significant price losses in recent weeks. The leading index, the S&P 500, has at times fallen by more than 10% from its previous highs - a decline that is officially considered a stock market correction. This development has stoked fears of a sustained bear market in the USA, which could drag other stock markets down with it.

It is true that the S&P 500 is currently struggling with the technically significant 200-day line and could fall significantly below it at times. However, a sustained bear market is not to be expected. Financial history shows us which macroeconomic factors lead to a sustained stock market downturn. As a rule, there are two main triggers: either a genuine (hard) recession, which leads to a slump in corporate profits, or an inflation shock, which results in a sharp rise in interest rates and thus weighs on company valuations.

In view of the uncertainty caused by Trump's erratic policies, the US economy is unlikely to grow this quarter and possibly next. However, it remains far removed from a genuine recession. There is a lack of clear macroeconomic imbalances that could turn this economic dip into a recession.

The scenario of a hard inflation shock also appears implausible for the foreseeable future. The most important driver of inflation - the oil price - is currently trading near a multi-year low. Even in the event of geopolitical escalations, the Organization of the Petroleum Exporting Countries and its partners (OPEC+) could react quickly. It has built up significant reserve capacities in recent years and would therefore be in a position to cushion any supply shocks.

However, there is a third type of bear market that rarely occurs empirically. It has no clear macroeconomic trigger, but develops of its own accord, so to speak. The best example of this is the multi-year bear market following the bursting of the dotcom bubble in March 2000, when extremely high valuations were not followed by the hoped-for earnings growth, which ultimately led to a sustained bear market. In view of the current high valuations of the US stock markets, this scenario would actually be the more likely one. However, although the valuations of US technology companies - the main driver behind the US stock markets - are high, overall they are not comparable with the excesses at the turn of the millennium. In addition, valuation levels have recently fallen moderately.

In summary, investors should keep a cool head and not be infected by the poor mood on the markets. Neither the macroeconomic environment nor valuations currently point to a sustained bear market. However, the high volatility is likely to persist in the medium term, as the US markets are still highly valued despite initial corrections and are therefore heavily dependent on the whims of investors.