by Daniel Brouse
April 3, 2025
Today, one of the stock market indices officially entered into bear market territory. A bear market is typically defined as a decline of 20% or more from recent highs in a broad market index, such as the Russell 2,000 Small-cap stocks. This downturn signals a shift in investor sentiment, where pessimism takes hold, and uncertainty about the future of the economy can lead to widespread selling.
Bear markets are often triggered by a combination of factors, including economic slowdowns, tightening monetary policy, rising interest rates, or geopolitical instability. These market conditions can cause investors to lose confidence in the future earnings potential of companies, leading to a sell-off in stocks. During a bear market, investors may be more risk-averse, seeking safer investments like bonds or cash.
While bear markets can be unsettling, they are a normal part of the market cycle, and historically, markets have eventually recovered. However, the duration and severity of a bear market can vary, and it is difficult to predict when the downturn will end.
This bear market is likely to be different from any in the last 100 years, largely due to the unique circumstances surrounding the ongoing trade war and its ripple effects throughout the global economy.
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Global Supply Chain Disruptions: Unlike past bear markets, this one is heavily influenced by the disruption of global supply chains caused by tariffs, trade restrictions, and geopolitical tensions. The trade war, particularly between the U.S. and China, has led to higher costs for many goods, impacting not only international trade but also domestic industries. Many companies that rely on cheap imported goods, materials, or components are seeing increased costs, which is affecting profitability and, in turn, stock prices. This is something we’ve rarely seen on such a global scale in previous bear markets.
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Tariffs and Inflationary Pressures: The trade war has imposed significant tariffs on goods, especially in industries like technology, automotive, and agriculture. These tariffs can increase the price of consumer goods and production costs, leading to inflationary pressures. While inflation is a typical concern during economic slowdowns, the added complexity of tariffs exacerbates these pressures and could delay or hinder any potential recovery. The impact of tariffs on key industries, such as tech, also adds a new layer of uncertainty to the market.
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Longer Recovery Period: In past bear markets, the recovery often came when the economy and investor confidence began to rebound. However, in this case, the ongoing trade war and the potential for further escalations suggest that the recovery might be slower and more prolonged. Trade wars can create lasting disruptions in markets, and tariffs can remain in place for an extended period, creating an environment of uncertainty and volatility that may delay the return to positive growth.
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Unprecedented Economic and Political Uncertainty: The combination of economic factors, such as the tariffs imposed under the trade war, with political instability and tensions, makes this bear market distinct. Past bear markets, such as those caused by the 2008 financial crisis, were primarily driven by financial imbalances and market speculation. The current bear market, however, is being heavily influenced by trade policies that have widespread geopolitical implications, adding a layer of complexity that investors have not faced before on such a scale.
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Global Impact of Protectionism: The trade war has led to a rise in protectionist policies around the world, which could lead to a reshaping of international trade relationships. Unlike previous bear markets, the trade war could result in long-term shifts in global trade patterns, with countries looking to secure more self-sufficiency or diversify their supply chains away from traditional partners. This can create added volatility as industries adapt to new market dynamics.
In conclusion, while bear markets are a natural part of economic cycles, the ongoing trade war adds unprecedented complexity to the situation. The disruption of global trade, inflationary pressures, and extended uncertainty may make this bear market more unique and prolonged compared to those seen in the past 100 years. The outcome will likely depend on how governments and businesses adapt to this new era of trade tensions, protectionism and most importantly — a trade war.
Trade War!
Over the past 24 hours, a diverse group of world leaders has voiced concerns about the tariff policies and united to isolate the U.S. on the global stage. Countries from around the world, including some of America’s closest allies such as Australia, Canada, Japan, New Zealand, Taiwan, South Korea, and other major U.S. partners, have condemned President Donald Trump’s actions. European Commission President Ursula von der Leyen stated, “The consequences will be dire for millions of people around the world. We are ready to respond.”
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