Dear trader, dear stock market friends.
There seems to be no end to the bad news at the moment. Last week, headlines about the trade dispute and the introduction of new tariffs once again dominated events and caused downward pressure on the stock markets. The Dow Jones lost around 1300 points or 3.1% compared to the previous week. The technical chart picture now appears to be severely damaged. The market is already clearly oversold, but a genuine upward countermovement has not yet taken place. However, a strong rally followed on Friday evening and the exciting question is whether this can be continued in the new week or whether the bears will immediately take over again.
Fears of recession cause selling pressure
The likelihood of a recession in the US has increased due to the ongoing trade dispute and fears of the negative impact of the new tariffs introduced by the Trump administration. Many banks have adjusted their forecasts. However, the estimates for the probability of a recession are still below 50 % in most cases:
- JPMorgan Chase: Chief economist Bruce Kasman now estimates the probability of recession in the US at around 40 % (previously around 30 % at the start of the year). He warned of permanent damage to the USA's reputation as an investment location if the government continues to undermine confidence and justified the higher risk of recession with the concern that President Trump's new import tariffs could significantly slow down US growth. According to Kasman, the risk of recession would rise to over 50 % if the reciprocal punitive tariffs threatened from April actually come into full force.
- Goldman Sachs: Goldman Sachs also raised the estimated 12-month recession probability to 20 % (from 15 % previously). Goldman economists also cited the new US tariffs as the main reason, which are likely to fuel inflation and dampen economic growth, increasing the risk of recession. At the same time, Goldman significantly lowered its GDP growth forecast for 2025 (from 2.2 % to 1.7 %).
- Morgan Stanley: Morgan Stanley's chief economist Michael Gapen explained in an interview that the probability of recession has risen "perhaps to 20-25 %" as a result of recent developments - around twice as high as in a normal year. Previously, only around 10 % had been expected. Gapen attributed the adjustment to the combination of several policy measures: Trump's tariff increases in particular, but also planned government spending cuts and stricter immigration controls would have a noticeable negative impact on economic activity in 2025.
However, there have also been developments in the past week that give the bulls hope and could lead to an extension of the correction that began on Friday. On the one hand, fears of a sharp rise in unemployment appear to be exaggerated, at least for the moment. At 221,000, initial jobless claims last Thursday were below market expectations and below the previous week's figure. In addition, consumer prices and producer prices signaled a continuing trend of disinflation, which increases the Fed's scope for interest rate cuts in the current year.
Agreement in the budget dispute
Another factor that made investors cautious over the course of last week was the ongoing budget dispute between Republicans and Democrats. Failure to reach an agreement would have resulted in a government shutdown. However, as in previous years, an agreement was reached at the last minute and a shutdown did not occur. The positive reaction on the stock markets is likely to be due in part to the agreement reached. It will be interesting to see whether the positive sentiment can continue at the start of the week before the focus turns to the Fed meeting on Wednesday, March 19, as well as some important economic data, which could shed light on whether fears of a recession are justified or exaggerated.
Dow Jones forms double top
A look at the daily chart of the Dow Jones shows that a certain amount of damage has now been done to the chart. After the Dow Jones was unable to exceed the all-time high of around 45,000 points, a downward movement followed, which immediately led to a breakout below the support level of 42,000 points.
A double top has thus been formed and triggered, which could or should lead to further falling prices, at least according to classic charting techniques. You can determine the price target of this downward movement by subtracting the height of the double top from the bottom of the double top: 42,000 - (45,000 - 42,000) = 39,000.
It remains to be seen whether the downward trend will actually continue or whether a new bear market will even emerge. Share prices are currently heavily dependent on political developments and it is difficult to predict what decisions will be made in the coming days and weeks. If developments do indeed point to a recession, we are likely to see prices fall further.
The hope of the bulls, on the other hand, is that the tariff dispute, as in Donald Trump's first term in office, is mainly motivated by negotiating tactics and is being used as a means of exerting pressure. If a de-escalation and agreement is announced, as in 2017, the stock markets could quickly return to rally mode. If the Dow Jones can rise in the coming days amid high volumes and sustainably break through the 42,000-point mark, the chances of a continuation of the bull market would be good.
Author: Tobias Schmid
Date: 17.03.2025
