The S&P 500 fell by 1.57% on Tuesday, closing below the 5,000 mark for the first time in almost a year, with expectations of a further 1.7% decline today. China is set to impose 84% tariffs on U.S. goods, escalating trade tensions.
Investor sentiment has dropped, with only 21.8% of individual investors reporting bullishness according to the AAII Investor Sentiment Survey. The tech-heavy Nasdaq 100 also fell 1.95% after reaching a local high, losing over 1,300 points in response to tariff news.
Market Fear Indicators Rise
The VIX index closed above 50, marking the highest level since the COVID-19 pandemic, indicating extreme fear in the market. A rising VIX typically coincides with stock market declines, while a declining VIX hints at potential recoveries.
S&P 500 futures are signalling another decline following the tariff news, with key support levels around 4,830-4,850. While there may be signs of a bottom forming, any recovery is likely to be a correction rather than the onset of a new bull market.
Market volatility persists as global trade concerns escalate, with major indices showing technical damage that will require time to rebuild.
This latest setback in the S&P 500, closing beneath the psychological 5,000 level, represents more than a short-term pullback—it’s drawing attention to a shift in sentiment that’s been steadily unravelling for several sessions now. With a daily drop of 1.57% and futures pointing down again, the mood isn’t just cautious, it’s turned outright defensive. Add in the 1.7% expected retreat today, and it’s clear the market is pricing in more than a passing headline.
Nasdaq 100 Reaction To Tariff News
The sharp swing in the Nasdaq 100, which gave back over 1,300 points after brushing recent highs, reflects how hyper-sensitive growth and tech exposures have become to macro risk. When tariffs return to the headlines, as they have with China planning 84% duties on U.S. imports, we don’t see a proportional response—we see exaggerated cycles of risk-off selling. The reaction has been sharp and, honestly, well beyond what would be considered orderly in a stable outlook.
Brushing through technicals, key support levels in the S&P 500 between 4,830 and 4,850 are looming large now. These aren’t just numbers on a chart—they’re widely followed levels where larger players typically step in, adding liquidity and helping slow momentum on the downside. If they’re sliced through with closing confirmation, it would tell us that the broader market is starting to accept a lower valuation range. That says quite a bit, especially given how long we’ve been tethered to upward momentum.
It’s also worth pausing on the VIX, which hasn’t been above 50 since the depths of the COVID-19 crash. For context, this measure tends to reflect both investor demand for protection and the speed of expected market moves. When it spikes like this, we’re being told that downside hedging is no longer cheap, and that uncertainty about near-term market direction is extremely high. The result? A feedback loop, where options flow feeds volatility, and volatility drives more risk reduction trades.
From a sentiment standpoint, bullishness among individual investors has dropped to just 21.8% according to the AAII. That’s a low figure historically, especially if we isolate periods that did *not* follow financial crises. For us, such pessimism doesn’t mean an automatic reversal, but it enhances sensitivity to any upside catalyst—even minor ones. Still, the data points to limited upside unless macro headwinds ease.
Breadth metrics across equity indices are still showing weakness, while major sectors remain bruised. This isn’t a plain correction off highs—it looks broader and more sustained. Even if buyers appear in coming days, any bounce would be treated with caution. Not calling tops or bottoms, just observing flow: volume on down days has outpaced that on green days. That doesn’t happen in healthy trends.
Trade positioning has begun to reflect wariness, particularly in leveraged derivatives strategies. Futures curves in both equities and volatility are beginning to show irregular kinks—backwardation in the VIX term structure, more put skew in S&P options—and these are rarely friendly conditions for directional trades. There’s scope for sharp mean reversions, but they must be timed with surgical accuracy.
Given the speed of this selloff and the macro drivers behind it—specifically mounting trade hostility—it’s likely that systemic participants reduce exposure before reassessing. There’s not a lot of incentive to catch falling knives while the fundamental picture gets worse on a weekly basis. With tariffs of this scale being introduced mid-cycle, earnings expectations could soon face pressure, particularly among exporters and complex multinationals.
It doesn’t help that technical damage across the broader indices won’t be undone overnight. Rebuilding positive momentum in fractured markets takes time, and often some base-building behaviour. Patterns need to stabilise first; that usually appears as sideways action, not swift rallies. Without that foundation, any strength risks becoming a bull trap.
Watching implied volatilities over the coming sessions will be key. Should the VIX begin to unwind even slightly, and equity volumes normalise, we may spot areas where risk can be selectively reintroduced. Until then, risk remains skewed to the downside, particularly with retail flows still unwinding and momentum strategies flipping short.
We’re in a spot now where patience matters more than aggression. With liquidity dries up around key zones and correlation between assets increases, chasing reversals carries outsized risk. For those active in the derivatives space, that means option pricing is currently distorted and often undershoots reality. Use that to your advantage, but only with full awareness of the macro backdrop.
Let price confirm sentiment—not the other way around. Risk control, not conviction, is the better compass here.
