Wall Street Wrap: Nasdaq within 3% from bear market territory

Market recalibration for higher recession risks dragged on Wall Street

Wall Street endured a sharp risk-off session overnight, with the Dow plunging 1,600 points and the S&P 500 (-4.0%) and Nasdaq (-6.0%) posting their steepest declines since 2020. The major indexes closed at session lows, while the VIX surged to its highest level since August 2024—clear signs of intense selling pressures overwhelming any dip-buying attempts. While some modest short-covering is possible as we head into the weekend break, the broader downward bias remains firmly intact. Against a backdrop of lower highs and lower lows, selling into strength continues to be the preferred strategy for US indices.

At the core of the market sell-off is the repricing for higher recession risks, with Trump’s aggressive tariff proposals serving as the key catalyst. Whether viewed as a bargaining chip or a more determined effort to shrink the US trade deficit, the scale of these tariffs threatens to weigh on global trade flows, curb investment appetite, and stoke inflationary pressures, which may erode consumer spending. The view is that the current phase of ‘short-term economic pain’ may drag on for some time, with the upcoming 1Q 2025 earnings season likely to reveal a challenging backdrop of rising costs and weakening demand—risks that have not been fully factored into current consensus estimates.

Nasdaq standing 3% away bear market territory

The 6% plunge in the Nasdaq overnight has brought the index to within 3% from entering bear market territory, which is defined as a decline of more than 20% from a recent peak. The recent breakdown of a bearish flag formation does signal for the broader downward trend, with technical projections pointing to a potential target around the 16,420 level—a scenario that we believe likely requires confirmation of a recession to materialise. Immediate support to hold may be at the 18,274 level, where buyers may eye for some stability. But on the broader scale, buyers may have to exercise patience in seeing a higher low for conviction of a more sustained recovery.

Look ahead: US non-farm payrolls

Ahead, market attention will be focused on the upcoming US non-farm payrolls report for insights into US labour market conditions. In February 2025, the US economy added 151,000 jobs, while the unemployment rate inched up to 4.1%, reflecting a gradual labour market cooldown amid tariff uncertainties and widespread federal layoffs.

Looking ahead, with the Federal Reserve (Fed) projecting a year-end unemployment rate of 4.4% for 2025, any uptick from the current 4.1% could likely reinforce recession concerns. Current expectations point to further labour market softening, with payroll growth anticipated to slow to 137,000 in March, while the unemployment rate is expected to hold steady at 4.1%.

USD/CHF dipped to lowest level since October 2024

In the forex (FX) space, the eye-catching move may come from USD/CHF, which tumbled 2.6% overnight. The decline was driven by a double whammy—a weaker US dollar amid rising recession fears, coupled with safe-haven inflows into the Swiss franc. While near-term stability is possible with the horizontal support at 0.8545 coming into view and technical conditions entering oversold territory, a more compelling risk-reward for longs may depend on the emergence of any bullish divergence on the daily moving average convergence/divergence (MACD) or relative strength index (RSI)—similar to the setup seen in August 2024.

USD/JPY sees similar 2.6% sharp dip

A similar 2.6% dip is seen in the USD/JPY as well, with the Japanese yen benefiting from safe-haven demand as market participants look to aggressively de-risk. The formation of a new lower low reinforces the broader bearish trend, with the earlier breakout from its channel proving to be a false move after failing to establish a higher high (relative to 3 March). Likewise, greater conviction for dip-buying in the pair may hinge on any emergence of bullish divergence, which previously supported more sustained turnarounds in December 2023 and August 2024.