Buy The Dip? Wall Street Sell-Offs Leave Markets Conflicted as S&P 500 Forecasts Fall

The resounding US Presidential election victory for Donald Trump sparked jubilation on Wall Street, as the prospect of a pro-growth, deregulatory-focused President became a reality. But with the S&P 500 retracing from its post-election highs, market sentiment appears to have shifted significantly.

With confident calls to ‘buy the dip’ fading amid the wider economic uncertainty surrounding tariffs, sticky inflation, and the uncertain impact of Trump’s bold policies, banks are hurriedly altering their expectations for 2025.

Goldman Sachs recently cut their expectations for the S&P 500 by the end of the year to 6,200, a 4% reduction from the initial forecast of 6,500.

While the revised forecast still places the index at an all-time high at the close of the year, it marks a significant change of pace considering the S&P 500 began 2024 at 4,697 before surpassing the 6,000 mark just 13 months later.

Uncertainty has been a recurring theme on Wall Street since Trump’s January 20 inauguration, with announcements and subsequent delays of tariffs causing significant volatility as economists and investors alike struggle to come to terms with how the economy could respond to different policies.

As a result of the unpredictable nature of the President, the S&P 500 has fallen 5% since the beginning of 2025 at the time of writing, and sits below its value on the November 5, 2024 election night that sparked its impressive 6.25% rally to 6,114.

But what’s next? Could Wall Street’s recent struggles open up a buying opportunity for investors? Or is more uncertainty on the way?

What’s Next for Wall Street?

Amid the chaos, there are signs of resilience for US markets. Investors were dealt some positive news as inflation figures for February came in below forecasts, prompting a rebound for the S&P 500 following a series of heavy sell-offs focusing predominantly on tech and AI stocks.

Cooler inflation data is a particularly welcome sight on Wall Street because of the inflationary impact of tariffs and prospective trade wars, and their implications for interest rates.

With fears that the price of higher trading costs could be passed on to consumers, many eyes were fixed on the Federal Reserve and a possible hawkish monetary reversion if inflation rates threatened retaliatory interest rate hikes.

Instead, cooler inflation figures suggest that we’re more likely to see the continuation of a long-term dovish easing of interest rates from the Fed over the course of 2025 and beyond. Although, nothing can be certain with the US economy at present.

However, there appears to be little sign of Trump’s disruptive trade tariff threats dissipating, which is likely to see volatility hang over Wall Street while the President continues to use the danger of a trade war as a bargaining chip in negotiations.

According to Ross Mayfield, investment strategist at Baird, the Trump administration appears to be prepared to allow US markets to fall, and could even be willing to accept a recession in the United States if it helps to achieve their long-term goals.

Mayfield acknowledges that Trump’s reputation for measuring success on stock market performance may have led Wall Street into a false sense of security after the election, noting that recent sell-offs are a “big wake-up call” for investors.

However, market sell-offs aren’t uncommon during a Trump Presidency. During his first term, stocks fell in 2018 during trade disputes with China that resulted in a 25% tariff on goods imported from Chinese shores.

Escalations in the trade war saw the S&P 500 shed 20% of its value by Christmas that year before recovering 8% in January 2019.

The impact of the pandemic also saw the index plummet before recovering lost ground in a 53% resurgence in 2020.

Given that the S&P 500 has shown strong resilience in the face of tariffs and unforeseen downturns during Trump’s first term, it’s fair to assume that Wall Street is capable of turning around its struggles during the President’s second term. But should investors already be looking at buying the dip?

Time to Buy the Dip?

Investors can expect the S&P 500 to remain exposed to volatility as long as the outlook regarding tariffs remains hazy.

Given that Trump recently threatened 200% levies on wine and champagne imports from the EU in response to a 50% tariff on whiskey, it’s clear to see that a prospective trade war can have an unpredictable impact on a wide range of industries.

Although the S&P 500 has historically shown that it’s capable of growing off the back of adverse market circumstances, it’s worth investors adopting a more nuanced approach for their portfolios while uncertainty lingers over Wall Street.

Lisa Shalett, chief investment officer for wealth management at Morgan Stanley, has suggested that the weakening dollar and positive economic catalysts like structural fiscal reform in Europe could benefit investors adopting a more diversified portfolio.

The rollout of government stimulus in China could also help to foster growth domestically, meaning that foreign investments may be more sound in the short term than buying the dip on Wall Street.

Trade to Determine the Future

When the dust begins to settle on tariffs and the threat of a trade war, Wall Street will be in a strong position to recapture its lost growth in recent weeks.

Although the S&P 500 has been boosted further by the ongoing AI boom, new competition may make new all-time highs more difficult to come by, but stocks should be uninterrupted by geopolitics to an extent.

With positive inflation data, it may be that the dip to buy has already arrived. But with the looming specter of a trade war, we may see Wall Street struggle with unpredictability for a while longer.