-7.4%! This drop in U.S. stocks is worse than during past geopolitical conflicts; Deutsche Bank: Far from the bottom.

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The drop in US stocks amid the current wave of geopolitical conflict has exceeded the median level of similar historical events, and multiple indicators suggest that selling pressure has yet to be fully released.

On Monday (March 30), US stocks briefly rebounded in the early session after Trump commented on negotiation progress, but the gains did not last—the S&P 500 ultimately closed down 0.4% at 6343.72 points, the Nasdaq Composite fell 0.7% to 20794.64 points, and the Dow Jones Industrial Average edged up 49.50 points, or 0.1%, to 45216.14 points.

Since the close on February 27, the S&P 500 index has fallen a cumulative 7.4%, a decline that has surpassed Deutsche Bank’s recorded median maximum drawdown of 6.1% in historical geopolitical conflict events.

Analysis by Deutsche Bank’s strategist team shows that discretionary investors are clearly underweight stocks, but there is still room for further reduction; systematic strategy funds’ equity exposure has fallen below neutral levels, and if the market does not rebound in time or volatility continues to climb, such funds may continue their selling activities, adding pressure to the market.

It is noteworthy that the VIX “fear index” closed above 30 on Monday, a level that typically indicates the market is on high alert.

Historical playbook fails, this drop is deeper

About a month before the outbreak of the Iran conflict, many professional investors bet that this shock would be brief, based on historical precedent—stock market corrections triggered by geopolitical shocks are often repaired within days or weeks.

A data chart previously compiled by Deutsche Bank’s strategist team once served as the market’s “manual.” The chart showed that historically, the S&P 500 index bottoms out an average of 16 trading days after geopolitical shocks, with an average recovery cycle of 109 days—though this number was significantly raised by the Arab oil embargo in 1973, when the S&P 500 took more than five and a half years to recover its losses.

However, the current market trend has rendered such historical rules ineffective. Israel and the US launched attacks on February 28, and investors were only able to trade related developments from the opening on March 2. As of Monday, 20 trading days have passed since the outbreak, and the S&P 500’s decline not only failed to bottom out within the historical average window, it has surpassed the historical median level of drawdown.

According to internal data from Deutsche Bank’s strategist team, discretionary investors are now clearly underweight stocks, but their holdings still have room for further compression. Systematic strategy funds—including commodity trading advisors (CTA) and other trend-following funds—have seen their equity exposure fall below neutral for the first time since July 2024.

The team warned that if the market fails to rebound promptly, or if volatility rises further, these funds may continue reducing positions, imposing additional mechanical selling pressure on the market.

The VIX index closed above 30 on Monday, a level historically associated with high market anxiety, suggesting investors remain highly concerned about the outlook.

Risk warning and disclaimerThe market carries risks and investments should be made cautiously. This article does not constitute individual investment advice and does not take into account the specific investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their own circumstances. Investing based on the information herein is at your own risk. ```