ECC Information Management and Advisory Services

April 5, 2025, U.S.A.

My writing on March 11, 2025 predicted that the U.S. equity markets would continue going down. By the time of this writing, the S&P 500 index has gone down from its peak in February of this year to a low of 5074 as of this past Friday, April 4, 2025. This 17.4% down of the index is worse than my best case scenario (or, 5200 points of the index), but has not reached my worst case scenario of 4700 points. Will it? Answer to this question largely depends on how stubborn the Trump administration is on its tariff goal. Or, put it more revealingly, when the Trump can win (or lose) his trade war.

My view is that it will be longer than many people have imagined. I say this because I believe the ultimate goal of Trump for all of these is to ensure a long-lasting supremacism in the U.S. culture and history. To achieve that, he and his administration and his die-hard supporters have to see that manufacturing jobs fully return to the U.S., and his die-hard supporters can make as decent wages and have as decent lives as before (say, the 1950s, 1960s, etc.). I am all for people, Trump die-hard supporters included, to have decent wages and lives of their own and their families. That being said, the current path to that goal appears to incur huge costs and hefty price to pay for. It is also noted that, many Americans do enjoy their decent wages and lives, and they may not want to pay for that price at all. This current political landscape will lead to a lot of turmoil, which puts the American political system under huge pressure. My hope is that the American political system will survive and cool heads will win over.

For this reason, I predict the following points related to the U.S. equity markets:

1. The trade war will last longer than most people are currently imagining. The tariffs that Trump imposed on many other economies on April 2, 2025 will not be significantly altered (if not made worse) for a long time. This is because it is extremely costly and difficult to have many manufacturing jobs back in the U.S. Unless these jobs are back and allow the formation of worker unions, Trump’s die-hard supporters will not relent. People may say that Trump wants to do deals with other countries, and as long as other countries show some signs of bending their knees, Trump may reduce or remove the tariffs. I doubt that because Trump wants manufacturing jobs back, not world trade, and that takes long time.
2. Major trading partners will retaliate, and that will lead to almost global recession (or very close to it), with the American economy bearing the brunt of it. China already retaliated with “reciprocal” tariff of 34%, matching Trump’s demand on April 2. Canada made 25% tariff on U.S. auto vehicles. At the moment of this writing, it is unclear if EU will retaliate and if yes, how much. My view is that the EU will definitely retaliate as they know there is no way back on Trump’s tariff. Some smaller economies (such as Vietnam) have indicated that they are willing to make concessions and negotiate better terms with the Trump administration. I doubt the Trump administration will entertain much with these small economies; as a result, many tariffs will be kept on. I am not sure if the Trump administration mistakenly believed that, after the April 2 tariffs, many economies will come to terms with Trump. In fact, it does not matter too much because, again, the ultimate goal of the Trump administration is to get manufacturing jobs back in the U.S.
3. The global economy will enter a recession in the next year or two, with the U.S. bearing the brunt of it. This means that the U.S. equity markets will continue to drop. The headwinds for the U.S. equity markets will be blowing strong, on the following fronts: (1) earnings will come down or even contract due to reduced customer spending in the near term (including earnings from overseas for multi-nationals); (2) capital outflow from the U.S., esp. overseas’ capitals; (3) the potential of de-dollarization, which will pull the rug under many assets in the U.S., including U.S. bonds.

Given the above analysis, I forecast that the S&P500 index will go down another 10%to 20% from the current level, reaching 4000 (worst case) or 4500 (best case). This basically means that the realization of the worst case scenario in my March 11 blog. This is surely a rather bleak picture, but I really do not see many points (if at all) that can help brighten the near term picture. I guess only history can tell.