The Blubber

Stock volatility and credit spreads typically move together, but this year they've started to diverge as the S&P 500 declines amid fears that President Donald Trump's policies could hinder economic growth. According to a note from strategists Nikolaos Panigirtzoglou and Mika Inkinen, the S&P 500 is currently pricing in a 33% chance of a U.S. recession, while credit markets are estimating odds between 9% and 12%.

"While there is clearly elevated uncertainty in the near term as the Trump Administration has at least initially prioritized more disruptive policies, the risk is that credit markets are proven right," the strategists noted.

U.S. equities have fallen this quarter due to concerns that Trump's trade policies and approach to government employment could negatively impact the economy. The lack of clarity on the timing and extent of tariffs has further fueled market uncertainty, leading several prominent market analysts to temper their optimism.

Goldman Sachs Group Inc. and Yardeni Research both lowered their S&P 500 targets this week. Meanwhile, teams at Citigroup Inc. and HSBC Holdings Plc downgraded their outlook on U.S. equities, and Morgan Stanley's Michael Wilson predicts the benchmark could drop nearly 2% more to 5,500 during the first half of the year.

The S&P 500 has now entered its fourth consecutive week of losses, marking a swift retreat from the winning bets of last year. Mechanical selling, hedge fund deleveraging, and a sharp decline in market sentiment have made it difficult for stocks to stabilize.

The Nasdaq 100 has underperformed this year, with investors selling off expensive tech stocks due to concerns about competition and rising costs in the artificial intelligence sector.

However, there are signs that the selling pressure in tech stocks may be peaking. Volume on the Invesco QQQ Trust Series, a popular ETF tracking the Nasdaq 100, surpassed 75 million shares this week—a level that has previously marked a bottom during the past 20 months.

JPMorgan strategists noted that equities could find support from potential buying driven by month- or quarter-end rebalancing by mutual funds, U.S. defined benefit pension funds, and sovereign wealth investors. These factors could generate about $135 billion in demand for stocks.