Market drawdown vs. downturn: Watch the fundamentals

Policy uncertainty can trigger equity drawdowns, but the structural bull market is more likely to end only when economic and corporate fundamentals materially deteriorate.

• Corrections of 5% to 10% occur in most years, and the S&P 500 fell 18.75% from its February 19, 2025 peak to its April 8, 2025 low amid tariff uncertainty, while declining about 9.00% from its February 2026 high during renewed geopolitical uncertainty.
• Markets have repriced policy expectations as investors assessed tariffs, higher oil prices, inflation and the possibility of further Federal Reserve tightening, pushing long-term interest rates higher.
• Despite the shift from pricing roughly three rate cuts at the start of the year to contemplating two or three rate hikes, credit spreads have remained historically tight and the small-cap and equal-weight S&P 500 indexes have stayed near all-time highs.
• The author sees a break in the artificial-intelligence investment cycle as a greater threat to the bull market than Fed tightening, with warning signs including earnings disappointments, downward analyst revisions, weaker guidance and reduced hyperscaler capital spending.
• Inflation expectations remain reasonably contained and the private sector is not particularly over-levered; the article says none of the key AI or earnings warning signs has materially appeared so far.

Takeaway: Investors should distinguish policy-driven drawdowns from a bear market and monitor earnings, corporate guidance, AI investment and investment-grade bond-market absorption capacity for evidence that fundamentals are turning down.