The recent decline in the S&P 500 reflects a pullback similar to that of the 2015–2016 industrial recession, though it remains short of the 20% drop recorded in late 2018.
The U.S. benchmark index fell over 10% in just two sessions, leaving investors puzzled by the rapid shift from pricing in stagflation to bracing for a full-blown recession.
Lori Calvasina, Head of U.S. Equity Strategy at RBC Capital Markets, explained in a post-close report on Friday that a stagflation scenario aligns more closely with a growth scare, which could result in a 14–20% drawdown—bringing the S&P 500 to around 4,900. However, if full recession pricing takes effect, the index could drop to between 4,200 and 4,500, based on historical median and average drawdowns of 27% and 32%, respectively, since the 1930s.
RBC’s technical strategists have identified 4,954 as the next support level for the S&P 500, corresponding to the April 2024 low. The following support level is at 4,884, marking a 61.8% retracement of the October 2023–February 2025 bull market. Resistance levels are seen at 5,126 and 5,228, with the index closing at 5,074.08 on Friday.
Defensive Sectors Outperform as Market Shifts
Classic defensive sectors are outperforming, while Energy, Tech, and Financials are exhibiting the worst trends. Calvasina noted that this defensive leadership resembles patterns observed during the 2018 trade war.
Financials and Tech were among the worst-performing sectors during the 2018 trade war announcements. While Energy lagged during that period, it appears to be taking an even harder hit this time, which is unsurprising given the collapse in oil prices. Meanwhile, Industrials have demonstrated greater resilience.
Calvasina expressed surprise at two consecutive days of significant stock declines and observed that while official data does not yet confirm it, recession concerns have started to emerge in market discussions.
Recent developments indicate that geographical rotation is no longer the primary factor influencing the U.S. equity market. Signs of de-risking and a shift to the sidelines were evident even before the Rose Garden tariffs were announced, Calvasina concluded.