It hasn’t been easy being a stock market investor this year, and the pain is not only being felt by day traders.
The S&P 500 index is the most widely tracked stock market index, and its 6% year-to-date decline means that millions of Americans who own the benchmark via retirement accounts like 401ks are also suffering.
Stocks were already struggling before April, but it’s been a particularly tough month for investors following President Trump’s tariffs announcement on April 2, so-called “Liberation Day.”
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The Liberation Day reciprocal tariffs announced were far higher than most expected, forcing investors to adjust their recession and corporate profit outlooks. As a result, the S&P 500 lost 12% of its value after Trump’s reveal, sparking widespread concern that a bear market is looming.
The risk of tariffs to the economy isn’t lost on veteran fund manager Ken Fisher. Fisher, the billionaire founder of Fisher Investments, an asset manager with $295 billion under management, has been sounding alarm bells over tariffs for weeks.
This week, Fisher weighed in on the bear market risk, and given his experience and insight into the markets, investors should pay attention.
Image source: Michael M. Santiago/Getty Images
U.S. economy is struggling, and that’s before tariffs hit
Inflation isn’t nearly as bad as in 2022, when the Federal Reserve was forced to about-face on its belief that post-COVID stimulus-driven inflation was transitory.
The Fed’s war on inflation, which included the most restrictive monetary policy since Fed Chair Paul Volcker fought inflation in the early 80s, has driven inflation down from its 8% peak, but the effects are still being felt, and rate hikes have taken a toll.
CPI inflation was 2.4% in March, above the Fed’s 2% target, and most believe tariffs will cause inflation to rise, further hamstringing consumers. Worse, the Fed’s rate hikes in 2022 and 2023 have pressured the jobs market, contributing to unemployment rising to 4.2% from a low of 3.4% in 2023.
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Consumers have already shifted spending away from discretionary items to essentials, so businesses will likely struggle to pass on all the higher costs associated with tariffs. If so, profits will shrink, and companies will tap the brakes on spending too.
As a result, austerity could deliver yet another blow to an economy already in retreat.
ISM’s manufacturing PMI was below 50 in March, showing the industry is contracting. Meanwhile, services activity, which powers two-thirds of our economy, also shows signs of wear. ISM’s services PMI fell to 50.8 in March from 53.5 in February,
“There has been a significant increase this month in the number of respondents reporting cost increases due to tariff activity,” wrote Steve Miller, Chair of the ISM Services Business Survey Committee.
Perhaps, unsurprisingly, consumer confidence is tumbling.
The University of Michigan’s Consumer Sentiment Survey results collapsed 8% to 52.2 in April from March, the fourth-worst level in April since 1952. Americans now think inflation in the year ahead will reach 6.5%, up from estimates of 5% last month. That’s the highest forecast since 1981.
The Atlanta Fed’s GDPNow forecasting tool expects the first-quarter GDP to be negative 0.4%, adjusted to account for gold imports and exports.
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But don’t expect the Fed to come to the rescue with interest rate cuts absent a significant catalyst.
The Fed cut rates three times last fall to shore up employment, but sticky inflation has forced it to the sidelines. With tariffs on the horizon, it’s reticent to risk further fanning inflation with more cuts. That’s very problematic, given that jobs could weaken if tariffs cause spending to halt.
Veteran fund manager Ken Fisher sends blunt message on bear market risk
The S&P 500’s sell-off was sharp and fast, causing most sentiment and technical indicators to flash “oversold,” prompting a snap-back rally over the last two weeks.
The proof now will be in the proverbial pudding. Those indicators aren’t as oversold anymore, and some short-term measures are approaching overbought. If stocks roll over again, expect bear market chatter to ramp up.
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We have already reached correction territory associated with a decline of at least 10%. A bear market would be an S&P 500 decline of 20% or more.
“Sometimes, it becomes a distinction without a significance,” said Ken Fisher on X. “There is not a marked difference between a market that’s down 19%, which would be categorized as a large correction, and a market that’s down 21%, that would be categorized as a small bear market… a 2% difference is something that wiggled in a day or two.”
Regardless, investors view bear market drops differently than corrections, especially big ones, mainly because they can signal worse things coming for portfolio balances and the economy.
“Significant bear markets take more time, its a bigger magnitude drop, it’s scarier, it brings bigger fears, it usually but not always is associated with recession that lags the stock market,” said Fisher “It’s a valid fear.”
That said, Fisher isn’t convinced that a bear market is inevitable. Although, he isn’t ruling one out yet either.
“I still think it’s a bull market year. I think we’ve been in a correction,” said Fisher. “I might be wrong.”
What could make Fisher change his tune? If President Trump insists on going forward with a trade war.
“I’ve assessed everything the administration has done on tariffs as backwards, ignorant, not understanding how global trade works… all of this is stupid stuff,” said Fisher. “It’s wrong.”
Fisher maintains that history has repeatedly shown that tariffs are always worse for the country imposing them than for the countries they’re imposed on.
“If the administration keeps wiggling the way that we’ve been wiggling, and keeps doing stupid stuff in these regards, yeah, we probably get a bear market and recession,” said Fisher.
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