Wall Street Watching Signals That the US Stock Selloff Could Be Coming to a Close

Investors who have experienced one of the most rapid declines in US stock prices may be on the verge of relief.

Equity analysts from major firms such as JPMorgan Chase & Co, Morgan Stanley, and Evercore ISI are suggesting that the most challenging phase of the recent slump appears to be behind, referencing various indicators of investor sentiment, positioning, and positive seasonal trends.

On Monday, major US stock indices rebounded after news that President Donald Trump intends to adopt a more measured strategy regarding tariffs scheduled to be implemented on April 2, alleviating some fears that his intensifying trade conflict could lead to rising inflation and economic stagnation.

These concerns—combined with ongoing apprehensions that the AI-driven rally among Big Tech companies had peaked—contributed to a significant drop in stock values since mid-February, pushing the S&P 500 Index into its seventh-quickest 10% decline from an all-time high in almost a century and erasing over $5.6 trillion from the index’s market value, according to Bloomberg’s data.

According to JPMorgan, a large portion of this drop stemmed from a group of momentum stocks—the 50 companies with the strongest price performance in the S&P 500—which saw two years of gains wiped out within three weeks. Nevertheless, the selloff provided relief from the overcrowding that had developed in that sector during the earlier rally.

“Consequently, the likelihood of another drastic market pullback in the near term is minimal,” noted JPMorgan strategists, led by Dubravko Lakos-Bujas, in a client communication on March 21.

Pockets of the market that were hit the hardest recently experienced the most significant rebounds on Monday. A measure of the so-called Magnificent Seven stocks soared by 3.4%. Tesla surged 12%, marking its largest one-day gain since November 6, following Election Day. Overall, the S&P 500 index rose by 1.8%.

Morgan Stanley’s Michael Wilson echoed Lakos-Bujas’s more upbeat perspective, noting that seasonal trends, a declining US dollar, and Treasury yields, along with an extremely negative investor sentiment, are setting the stage for a “trading rally in the near future.” At Evercore ISI, chief equity and quantitative strategist Julian Emanuel remarked that the Trump administration’s economic comments have “reset expectations to such an extent that sentiment is currently very negative.”

“We believe that the corrective phase we experienced is resolving, and it is likely that we will see significant gains in the near term,” he stated.

The recent market downturn has left Wall Street divided over whether it’s time to buy the dip, as uncertainties surrounding trade policy and concerns over inflated tech valuations linger. While analysts anticipate a period of stability ahead, they are cautious about encouraging clients to invest heavily in US equities at this time.

This cautious stance is largely due to Trump’s upcoming announcement of universal, reciprocal trade tariffs next month, which could again shift investor expectations regarding the potential economic impact.

According to Emanuel from Evercore, this will serve as the next market catalyst. Morgan Stanley’s Wilson is also monitoring employment and manufacturing data, in addition to earnings revisions, as indicators for a more sustainable rally.

Chief market strategist and president of 22V Research, Dennis DeBusschere, noted on Monday that the internal dynamics of the market have improved, suggesting that the US economy is not heading toward a recession. The unusually low investor sentiment, in light of still robust economic data, implies “stronger than normal returns” over the next one, three, and six months if the tariff impacts are minor. However, like his peers, he is awaiting more clarity regarding the tariffs before solidifying his outlook.

“Provided that tariffs do not pose a significant barrier to growth, fundamental indicators should recover throughout 2025,” he added. Nevertheless, “we are not highly confident that tariffs will not result in severely negative consequences, which is why we will wait for the April 2 announcement before confirming this long-term perspective.”

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