-7.4%! U.S. stocks fell worse this time than during previous geopolitical conflicts. Deutsche Bank: Far from bottoming out

### Dong Jing

Source: Wall Street CN

Statistics show that since the close on February 27, the S&P 500 has fallen by a cumulative 7.4%, surpassing the median level of maximum drawdowns in similar historical events and breaking the historical pattern of short-term bottoming. Deutsche Bank analysis points out that discretionary and systematic funds still have room for further position reduction. Coupled with the VIX fear index rising above 30, market selling pressure has not yet been fully released, and the decline in U.S. stocks is far from bottoming out.

The decline in U.S. stocks under the impact of this round of geopolitical conflicts has exceeded the median level of similar historical events, and multiple indicators show that selling pressure has not yet been fully released.

On Monday (March 30), U.S. stocks briefly rebounded in early trading after Trump commented on negotiation progress, but the rally failed to sustain. The S&P 500 finally closed down 0.4% at 6,343.72 points; the Nasdaq Composite fell 0.7% to 20,794.64 points; and the Dow Jones Industrial Average rose slightly by 49.50 points, or 0.1%, to 45,216.14 points.

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

Analysis by Deutsche Bank's strategist team shows that discretionary investors are now significantly underweight equities but still have room to reduce positions further. The equity exposure of systematic strategy funds has fallen below neutral levels; if the market fails to rebound in a timely manner or volatility continues to rise, position reductions by these funds could continue to pressure the market.

Notably, the VIX fear index closed above 30 on Monday, a level that typically signals a market in a state of high alert.

### Historical Playbook Fails; Deeper Decline This Time

About a month before the Iran conflict erupted, many professional investors bet the impact would be short-lived, citing historical precedent—stock market pullbacks triggered by geopolitical shocks tend to repair within days or weeks.

A data table compiled earlier by Deutsche Bank's strategist team once served as a market "playbook." It showed that historically, the S&P 500 bottomed on average 16 trading days after a geopolitical shock, with an average recovery period of 109 days—though this figure was heavily skewed by the 1973 Arab oil embargo, when the S&P 500 took more than five and a half years to recoup losses.

However, this round of market action has invalidated these historical patterns. Israel and the U.S. launched attacks on February 28, with investors first able to trade on the developments after the market opened on March 2. As of Monday, 20 trading days have passed since the conflict began. The S&P 500's decline has not only failed to stabilize within the historical average bottoming window but has also exceeded the historical median drawdown level.

Based on internal data, Deutsche Bank's strategist team notes that discretionary investors are now significantly underweight equities but still have room to further compress holdings. Equity exposure for systematic strategy funds—including trend-following funds such as CTAs—has fallen below neutral levels for the first time since July 2024.

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

The VIX index closed above 30 on Monday, a level that has historically corresponded to high market anxiety, indicating that investor concerns about the outlook remain elevated.

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