100 years of stock-market history suggests the S&P 500 could fall another 19%

• BNP Paribas warns of 19% downside for the S&P 500 despite the recent market recovery.
• Investors are optimistic, but tariffs could still impact earnings, the bank said.
• In a recessionary scenario, the bank said the market could fall another 35%.

Investors cheered on a stronger-than-expected April jobs report on Friday, but a new report from BNP Paribas suggests the pain might not be over just yet for stocks.

In a note to clients on Friday, strategists at the French bank said they see another 19% downside for the S&P 500, even if we don't get a recession. That's because investors are getting ahead of themselves, the bank said, and don't want to miss out on a rally from recent lows despite risks that the trade war could weigh on earnings in the months ahead.

"We think the rally off the lows is more a function of position capitulation than an 'all clear' signal for risk. Mega-cap Tech earnings have also helped," Boutle said. "Our base case is that a combination of earnings downgrades and PE compression could see equities retest YTD lows."

The bank's thinking on how far the market could fall from here stems from an analysis it conducted of 100 years of US stock-market drawdowns. In non-recessionary sell-offs — which is how BNP identifies the current pullback — the index's price multiple tends to settle at 15 times earnings. The post-COVID era has been different, however, in that investors have consistently placed a 3-percentage-point valuation premium on the market. So, BNP sees 18 times as the likely valuation trough this time around.

"Using an 18x PE multiple would imply a spot level of 4600," wrote Greg Boutle, the bank's head of US equity & derivatives strategy.

While S&P 500 valuations have already dropped that low during this sell-off, Boutle said the current rally fails to account for future weakness from tariffs, setting the market up to retest lows.

The bank's more optimistic bull case is that the S&P 500 rises back to 5,800. But both their middle-of-the-road and bear-case scenarios see substantial further losses, "even without very negative assumptions," Boutle wrote. In a recessionary scenario, Boutle said the market could fall another 35%.

He sees a potential market reversal dragging out more slowly than the first drop in April: "a next leg lower could be much more of a grind lower, with less explosive downside moves."

As Trump's tariffs continue to take effect, investors are thirsty for signals about how the labor market is holding up, and how the import taxes are impacting inflation. April's non-farm payrolls report on Friday showed that the US economy added 177,000 jobs, more than the 135,000 that economists had expected — one for the win column. The S&P 500 rose as much as 1.7% on Friday on the news.

But some say the data doesn't offer investors a clear enough window into how much tariffs will weigh on the economy, and that we're not out of the woods yet.

"We ultimately don't think this report reveals much about the outlook," said Tiffany Wilding, an economist at PIMCO, wrote in an email on Friday. "Consumers are not likely to feel the impact of higher prices until May and beyond, due to inventory building ahead of tariff hikes."

The sentiments echoed what Goldman Sachs said in an April 29 client note, in which the bank argued that while policy uncertainty may have topped out, stocks could suffer further declines if it becomes clear that the economy is starting to falter in the coming months.

"We think the balance of risks still argues for expecting renewed declines in equity prices from current levels and for adding downside protection," wrote Vickie Chang, a macro researcher at the bank.

Of course, Trump has taken a volatile approach to policymaking and could repeal or reduce his baseline 10% tariffs on most countries at any moment. But if he doesn't, investors will continue to gather data points in the months ahead on how the economy is responding.

If payrolls, inflation, and earnings numbers are less favorable than the market expects, the S&P 500's roller coaster year could continue, as BNP and others are warning.