The case for a U.S. bear market was already building before Trump upset foreign investors

MW The case for a U.S. bear market was already building before Trump upset foreign investors

By Jamie Chisholm

There are two important measures that point to a downturn for stocks, according to Longview Economics

Donald Trump used a speech at the World Economic Forum in Davos, Switzerland, this week to denigrate America's allies in Europe.

It's been a holiday-shortened week for U.S. investors, but it's certainly packed a lot in.

The S&P 500's SPX 2.1% dive on Tuesday, in response to Donald Trump's pledge to place more tariffs on European allies over their resistance to his Greenland ambition, has already been mostly recovered after the U.S. president's pivot.

With that swift rebound, it is tempting to think little has changed.

However, as Chris Watling, global economist and chief market strategist at Longview Economics, suggests, Trump's rhetoric and threats aimed at allies over Greenland mean significant damage has been done to the transatlantic relationship.

In a note published Thursday, Watling says that non-U.S. investors in the West will now be asking themselves two questions: "Do you sit it out for 3 years and hope for a return to the post WWII norms (i.e. a U.S. re-engagement with the post WWII rules-based order by the next President) at the next election; or do you start to trim strategic (i.e. structural) weightings in U.S. assets."

One issue to consider is that this latest rupture comes as many global portfolio managers were already worried about U.S. fiscal profligacy, according to Watling, "which is understandable given the lack of signs of fiscal consolidation and high/rising U.S. government indebtedness."

"Added to that, and given the unpredictability of this current U.S. Administration, the risk of a cut of your U.S. holdings/assets being taken from portfolios (in a form of tax, a la the [Trump-allied Fed governor Stephen] Miran proposed 'Mar a Lago' plan) must also be at the back of investors' minds," says Watling.

In other words, it may be feared that property rights, in America, are no longer sacrosanct.

However, Watling thinks that, regardless of how much emphasis foreign investors place on Trump's unpredictability, the case for a U.S. secular equity bear market, starting at some point in the few years ahead, is already building.

He highlights a couple of factors that point to this.

First is valuations, a bad guide for timing a market in the short term, but important in the medium and longer terms. On the latest data, the U.S. stock market is trading on a Shiller CAPE ratio of 39.9, which is the second highest reading on record, he notes. ("CAPE" stands for cyclically adjusted price-to-earnings and is a ratio used to gauge whether a stock, or group of stocks, is undervalued or overvalued by comparing its current market price to its inflation-adjusted historical earnings record.)

Second is elevated levels of stock ownership. Equities account for 42.2% of total U.S. household financial assets, which is the highest proportion ever, according to Watling. Also at a record high: equities as a share of defined-benefit pension assets.

Watling presents the following chart, which suggests previous U.S. secular bear markets began with a combination of valuation peaks coupled with record-high equity ownership. These peaked in 1968 and 1999, and U.S. secular equity bear markets followed in the 1970s and noughties, he notes.

Source: Longview Economics

Watling says that his firm, Longview, remains "tactically and strategically overweight U.S. equities (for now), but cognizant of these causes for concern brewing in the background." He adds: "The case for starting to diversify away from the U.S. is building."

The markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are lower as benchmark Treasury yields BX:TMUBMUSD10Y trade little changed. The dollar index DXY is flat, while oil prices (CL.1) rise. Gold (GC00) and silver (SI00) futures both hit fresh record highs, with the latter metal nearly touching $100 an ounce for the first time.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              6913.35    -0.45%  -0.27%  0.99%   12.99% 
   Nasdaq Composite                                                     23,436.02  -0.40%  -0.75%  0.83%   16.87% 
   10-year Treasury                                                     4.242      1.50    10.50   7.00    -39.20 
   Gold                                                                 4930.7     7.16%   8.08%   13.82%  77.54% 
   Oil                                                                  60.12      1.52%   5.60%   4.72%   -19.41% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

U.S. economic data due Friday include the S&P flash services and manufacturing reports for January, released at 9:45 a.m. Eastern time, and a final reading of January consumer sentiment at 10 a.m.

Intel shares $(INTC)$ are diving after the chip manufacturer's earnings and guidance could not support a stock that had risen 47% already in 2026.

Nvidia shares (NVDA) are rising after China said top tech firms may now prepare orders for the U.S. company's H200 chips, according to Bloomberg.

Capital One Financial $(COF)$ has agreed to buy privately owned fintech company Brex for $5.15 billion in cash and stock.

Companies reporting earnings on Friday include SLB $(SLB)$ and Comerica $(CMA)$.

Bank of America (BAC) and Citigroup (C) are considering offering new credit cards with initial rates capped at 10%.

Amazon.com (AMZN) is reportedly about to announce a second wave of job cuts.

The Bank of Japan kept its main interest rate at 0.75%, as expected, but its hawkish tone helped lift the country's 2-year bond yield BX:TMBMKJP-02Y to its highest levels since 1996. The yen (USDJPY) fell to its weakest point since July 2024, however, before rallying on anticipated BOJ intervention.

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The chart

When the stock market took a bath on Tuesday, small traders dived in. The JPMorgan chart posted on the social-media platform X by Blake Millard, director of investments at Sandbox Financial Partners, shows retail investors that day produced the third largest single-session buying event in a year. "Demand for equities remains robust, [and] dips are buyable," according to Millard.

Top tickers

Here were the most active stock-market ticker symbols on MarketWatch as of 6 a.m. Eastern time.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   INTC    Intel 
   AMD     Advanced Micro Devices 
   TSM     Taiwan Semiconductor Manufacturing 
   RKLB    Rocket Lab 
   META    Meta Platforms 
   AMZN    Amazon.com 
   PLTR    Palantir Technologies 

Random reads

New England Potato Head spat.

A very big and bouncy kangaroo.

New York has a whole new rat problem.

-Jamie Chisholm

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January 23, 2026 06:39 ET (11:39 GMT)

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