Market bottoms are usually a process. They often involve choppy price action and possibly a re-test of the lows, instead of a V-shaped recovery back to all-time highs. Crash and re-test Patterns happened during the 2016, 2015, 2011, 1998, and 1987 crashes. In contrast, V-shaped recoveries to new highs—like those in early 2019 and post-COVID 2020—are less common.
[...] Let’s review some 15–30% market declines from the past 40 years:
Markets don’t often rally straight back to all-time highs without pause. V-shaped bottoms typically require significant policy support. If Trump makes a deal and reduces tariffs on China, that could help trigger a V-shaped recovery.
S&P in 2020.
V-shaped reversal or choppy bottom?
Overall, I lean toward a “choppy bottom” instead of a V-shaped recovery. Trump’s primary focus is on fighting China, the US’ top economic rival. As part of his trade negotiations with countries in Asia, Europe, and North and South America, he may push for the US’ allies to impose tariffs on China as well. If successful, this could effectively isolate China from the global trade system, forcing other nations to choose sides. Given that the US is the world’s largest consumer market (a major net importer) and China is the biggest net exporter, most countries would likely align with the US because it is in their economic interest to do so.
Bottomline: the current rally should continue, but with significant volatility. While a V-shaped recovery is possible, it is not the most likely scenario.