Top 4 Reasons the S&P 500 Index Will Rebound After This Crash

The S&P 500 Index has come under pressure in the past few days as the recent rally lost momentum. It dropped to a low of $6,630 on Thursday, down from the all-time high of $6,755. This article explores the top four reasons why the blue-chip US index will bounce back soon.

S&P 500 Index to Rebound as Regional Banking Woes are Not Systemic

The S&P 500 Index has declined over the past two days as concerns about the regional banking sector have risen. These concerns rose after Zions Bank and Western Alliance, which have billions of dollars in assets, reported fraud-related losses when they published their financial results.

These announcements send shockwaves in the financial sector as they sent memories of 2023 when Silicon Valley Bank (SVB), Signature, and First Republic Bank collapsed.

Still, these fears are overblown as the credit losses have only affected two banks. Additionally, they don’t appear to be systemic, as the losses were due to fraud. Therefore, these fears seem overblown, meaning that the index may bounce back.

Additionally, the index has jumped from $3,800 in April 2023, when SVB, Signature, and First Republic Bank experienced significant declines, to $6,600 today, representing a 74% increase.

US Stock Market to be Boosted by the Upcoming Trump and Xi Jinping Meeting

The other key reason why the S&P 500 Index will bounce back after the ongoing crash is that the ongoing trade war between the US and China may thaw in the coming weeks. That’s because Donald Trump and Xi Jinping will meet later this month at the APEC meeting in South Korea.

This meeting will happen as tensions between the two countries remain at an elevated level, with each side flexing its muscles. China has stopped buying US soybeans, a move that targets Trump’s voters.

It has also warned that it may stop shipping rare weather materials to the country, a move that will affect the manufacturing sector. China has a 90% market share in the industry.

Additionally, China has asked its companies to avoid American chips, including those made by Nvidia. It is hoping that locally-made chips will gain market share over time. It has also launched an investigation into Nvidia and Qualcomm.

At the same time, Trump has threatened to impose large tariffs, which China has warned that it will reciprocate soon.

Therefore, the upcoming meeting between Trump and Xi may help to reduce these tensions as it comes before the two sides implement their restrictions and tariffs. A deal will help to boost the US stock market.

Federal Reserve Interest Rate Cuts

The other main reason why the stock market may rebound soon is that the Federal Reserve will likely continue cutting interest rates as the economic situation deteriorates.

Data released recently by ADP showed that the economy lost 36,000 jobs in September. More numbers have shown softness in the economy, with the manufacturing and services PMIs moving downwards in September.

Worse still, the US is now in its third week of a government shutdown, with no end in sight. Polymarket data shows the shutdown will likely go on to November. This shutdown is expected to harm the economy in the fourth quarter.

Therefore, the most likely scenario is that the Fed will slash interest rates in the upcoming meetings, which explains why bond yields have continued to fall. The stock market performs well when the Fed is cutting rates.

Strong Earnings to Boost the S&P 500 Index

Meanwhile, companies are publishing strong earnings, which will lead to higher stock prices. TSMC and ASML, two of the biggest companies in the semiconductor industry, published strong figures, in a sign that the AI demand is not slowing.

American banks, including Goldman Sachs, Morgan Stanley, and JPMorgan, have all reported strong numbers this week. A report by FactSet shows the average earnings growth will be 13% this quarter, the fourth straight period of double-digit growth.