Wall Street analysts are now warning that the S&P 500 could sink to 3,700 this year, even without a full-blown recession. That’s what Chris Senyek, chief investment strategist at Wolfe Research, told clients on Thursday.
He said the index could drop anywhere between 3,700 and 4,100 if the U.S. economy slows down, making it a 37% to 30% crash from where it started in January.
The S&P 500 has already dropped more than 7% this year and is sitting 11% lower than its peak in February. It officially entered a bear market earlier this month after President Donald Trump dropped his April 2 tariff bomb. Since then, the market has been moving sideways.
Earnings expectations collapse under recession fears
Chris said the biggest danger right now is what happens if the U.S. slides into a recession. If that happens, he expects S&P 500 earnings per share (EPS) to fall from $266 to $225, which would be a 15% drop. That drop lines up with what has happened in past downturns.
“If uncertainty caused by tariff policy were to push the U.S. economy into recession in 2025, we’d expect SPX EPS to fall at least 15% from current levels in line with the median EPS peak to trough over the past four recessions, of 16.7%,” Chris wrote Thursday.
He also pointed out that price-to-earnings ratios would shrink in that case. The S&P 500 currently trades at 19.4x earnings. If it drops to the 15-year average of 16.6x or the 10-year average of 18.4x, and EPS hits $225, then the index would crash to somewhere between 3,700 and 4,100.
For now, earnings season is off to a solid start. Out of the 157 companies on the S&P 500 that have reported so far, 76% beat expectations. That’s better than what analysts were expecting on March 31.
Back then, they predicted a 7.2% growth rate, but the current blended rate—which combines actual results and remaining forecasts—is now at 8%, according to John Butters, senior earnings analyst at FactSet.
Death cross formation warns of more losses ahead
The charts are flashing warnings too. On April 14, the S&P 500’s 50-day moving average dropped under its 200-day moving average, forming what traders call a death cross.
This kind of crossover isn’t normal. It’s only happened 50 times since 1928, and when it does, things usually get worse before they get better.
The data was tracked by Bank of America, and it shows that in the 20 days after a death cross forms, the S&P 500 has fallen 0.5% on average, and it’s ended lower more than half of those times.
If you stretch that window to 40 days, things don’t look much better. The index still ends up lower in almost half the cases, but when it rises, it gains 0.9% on average.
Push out to 80 days, though, and there’s some light. The index rises more often than not and brings in an average gain of 2.6% from when the cross forms.
But in this case, things are even messier. The 200-day moving average was also dropping when the death cross hit, which makes the pattern more dangerous.
Bank of America pulled data from times when both moving averages were trending down during the five days before the crossover. In those rare setups, the S&P 500 was down two out of every three times in the following 20 days, with an average loss of 1.6%.
The good news doesn’t really start until day 40, when the index rises in more than half of those cases and gains around 1%. If you wait two months, the odds are even better—67% of the time, the market goes up, and the average return grows to 3.5%.
Still, those gains only come after traders get knocked around. Bank of America’s Paul Ciana told clients this week, “This suggests we should consider buying a dip/retest of lows in April.”
As of now, resistance for the S&P 500 sits around 5,500, and the index hasn’t been able to push past that level and was last seen just under it, trading at 5,483.
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This articles is written by : Nermeen Nabil Khear Abdelmalak
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