US Stocks Flirt with Bear Market in Volatile Trading

US stocks swung dramatically on Monday, falling quickly to start the day into bear market territory before recovering to end the day little changed. Large-cap growth stocks ended the day in the green, up 0.6%.

Monday’s losses are a continuation of the worst market rout since the start of the covid-19 pandemic. Throughout the day, investors struggled for direction—and to separate rumor from fact—after US President Donald Trump indicated he’ll stand by his tariff policies and fears of a recession intensified.

In the bond market, yields whipsawed higher after several days of declines amid the crosswinds of rising risks of recession and higher inflation from tariffs.

US stocks opened on a grim note in New York, with the Morningstar US Market Index down as much as 3.6% in early trading. Stocks briefly shot higher amid rumors of a 90-day pause in the implementation of tariffs. But the market then headed lower again when the White House denied any plans for a delay and instead President Trump threatened additional tariffs on China. Stocks churned in afternoon trading, recovering most of their earlier losses, and closed down 0.3%.

Analysts say Monday’s action underscores just how deeply pessimism surrounding tariffs has permeated the market. With investors crowded at one end of a trade, it was easier for stocks to surprise in the other direction. “The market [was] primed to rally,” says David Lefkowitz, head of US equities at UBS Global Wealth Management. “It just tells you how one-sided the current market is ... if there’s anything that disrupts the negative narrative that is currently heavily embedded in prices, there’s a high probability that we’ll see some sort of bounce.”

It remains to be seen how durable those bounces might be. While brief, Monday’s “positive vibes ... showed how desperately traders want some tariff relief,” said Steve Sosnick, chief strategist at Interactive Brokers. But “until we get some sort of clarity, or the market finds a more comfortable level, the bounces could prove fleeting.”

The Nasdaq 100 closed 0.1% higher on Monday, while the S&P 500 was down 0.2%. Some “Magnificent Seven” stocks continued their declines from the previous week, with Tesla TSLA down 2.5%, and Apple AAPL down 3.7%. Nvidia NVDA held on to gains of 3.6%.

Market Dips Into Bear Market Territory, Valuations Fall

The technology-heavy Nasdaq Composite Index entered a bear market on Friday, having declined by 20% from its most recent peak. The wider S&P 500 dipped in and out of bear market territory on Monday morning, as did the US Market Index. The S&P 500 would need to fall another 2.9% to formally enter a bear market.

After Friday’s close, stocks had wiped out all their gains from the past 12 months. The market has fallen more than 10% since the start of the selloff on Thursday.

One side effect of those losses? Many stocks now look cheaper. Amid a deteriorating outlook for earnings and sentiment, “the market’s weighing mechanism has begun to adjust via valuations,” said Stuart Clark, portfolio manager at Quilter’s WealthSelect.

As stock prices fell over the past week, dozens of stocks covered by Morningstar entered undervalued territory. Those include Nvidia, Broadcom AVGO, and Bank of America BAC, which are now rated 4 stars by Morningstar analysts. JD.com JD, Becton, Dickinson and Company BDX, and PayPal Holdings PYPL are now rated 5 stars.

Bond Yields Creep Higher

The yield on the 10-Year US Treasury note had risen to 4.15% on Monday afternoon after closing at 4.01% last week. Yields fell sharply last week as equities sold off and investors recalibrated their growth expectations.

In the bond futures market, traders are pricing in a roughly 73% chance of four 0.25-percentage-point interest rate cuts from the Federal Reserve this year, according to the CME FedWatch Tool.

Recession Odds Rising

Analysts generally agree that if the tariffs remain in effect, they will dent global growth. Against that backdrop, forecasters are raising their odds of a recession in 2025.

Morningstar senior US economist Preston Caldwell now sees a 40%-50% chance of a US recession over the next 12 months, and he has reduced his forecasts for US GDP growth over the next four years by 1.1 percentage points.

“Only the tariffs that stick around really matter,” Caldwell says. “But, contrasting with what we saw with Canada and Mexico a month ago, we see little reason to expect a quick alleviation of these hikes. They might be whittled down a bit, but there’s no clear path to removing the bulk of them.”

Market Selloff Revives Memories of 2020 Crash

“The selloff in markets hasn’t been to the same magnitude as that of March 2020, but it has shocked investors just the same,” Michael Field, chief European markets strategist at Morningstar, said on Monday. “One key similarity with that time is the lack of visibility on whether things could get a lot worse for global markets before they get better, deterring investors from buying the dip.”

Field continues: “The key difference between now and then is that our current situation is entirely manmade and could in theory be fixed overnight. Whether the optimism around this outweighs the risk of our global trade system being permanently upended will determine the market direction.”

Asian and European Markets Plunge

A dramatic plunge in Asian equities kicked off the trading week, with Hong Kong’s Hang Seng Index ending the session down 13.2%—its worst performance since the Asian Financial Crisis of 1997. Hong Kong markets had been closed for a public holiday during the previous Friday’s global selloff. Mainland China’s CSI 300 Index fell 7.0% from Friday, while Japan’s Nikkei 225 benchmark finished the session 7.8% lower and South Korea’s KOSPI fell 5.6%.

The losses extended into the European trading session, with the Stoxx Europe 600 closing 4.5% lower. The Stoxx 600 Financial Services Sector Index underperformed the main benchmark, led lower by private equity firms Bridgepoint BPT, Partners Group PGHN, and EQT EQT. Energy stocks also lagged wider markets as crude oil futures resumed the previous week’s declines.

In a dramatic reversal, European aerospace and defense stocks erased nearly all losses in the course of the trading session, after Rheinmetall RHM initially declined by more than 10%.

Sunniva Kolostyak contributed to this story.