A Big Correction Would Cost Dow 10,000 Points

"Last year, the S&P 500 declined 19% from its February highs to its late April lows. A wild rally took it higher for the balance of 2025, and it closed up 17% for the year. From a market risk perspective, most of the decline was attributable to a single event. This was the Donald Trump "Liberation Day," which targeted huge tariffs across much of the world."

"Liberation Day, on April 2, was the day when the president threatened tariffs on nearly 100 nations. It was presented as a blanket set of charges, but some countries faced larger amounts. At one point, China faced tariffs exceeding 50%. The market assumed that international trade would be affected by hundreds of billions of dollars. Earnings at thousands of US companies were put at risk. The president backed down, quickly. Suddenly, the market began to rebound."

"The Dow Jones Industrial Average (DJIA) is unique among indices because it comprises only 30 components, in contrast to the S&P 500. The Dow, therefore, has a less stable base. Most of the run-up from 25,000 on January 4, 2018, to 50,000 recently was driven by a few stocks. According to The Wall Street Journal, the engine of the increase was driven by jumps in financial and tech stocks."

The S&P 500 fell 19% from February highs to late April lows, then rallied and finished the year up 17%. Most of the decline traced to the president's threatened global tariffs on April 2, labeled "Liberation Day," which risked tariffs on nearly 100 nations and at one point exceeded 50% for China. Markets feared hundreds of billions in trade disruption and at-risk earnings for thousands of US companies; the tariff threat was quickly withdrawn and markets rebounded. Twenty percent corrections have occurred several times this century. The Dow’s 30-stock structure and concentration in financial and tech names drove much recent upside and creates downside vulnerability, with Apple and Microsoft tied to AI exposure and financials facing potential AI disruption in trading and lending.

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