The return of President Donald Trump to the White House has intensified the global market volatility, and the geopolitical uncertainties. Economists have warned that the US may be headed for recession.
In an interview with Fox News, entitled “Sunday Morning Futures,” Trump refused to exclude a recession, saying, “I don’t like to make predictions.” It is important to understand that there is going to be a transition period because of the magnitude of what we are doing.
On Monday, the market reacted with another sell-off as worries about trade policy and stability of the economy grew.
The Dow Jones Industrial Average dropped by more than 1,000 points or 2.4% while the S&P 500 fell 2.8%.
Nasdaq Composite was the hardest hit. It plunged 5%, as many major tech companies saw their stocks plummet.
Magnificent Seven lead Monday’s market declines
On Monday, the “Magnificent 7” stocks led the sell-off. These were the top performers in the bull market.
Tesla’s stock fell 13% on Monday, its lowest single-day performance in 2020.
Alphabet Meta and Nvidia all dropped by around 5% while Palantir – a favorite among retail traders – fell more than 10%.
There are also signs that the broader market may be under strain.
S&P 500 has fallen 9.1% since its peak in February, while Nasdaq Composite is down 14%.
Russell 2000, which represents small-cap stocks has fallen by 18% since recent highs, and is now in bear market territory.
Lutnick: ‘There is no recession in America.
Howard Lutnick, the Commerce Secretary, dismissed fears of a recession, saying that Americans “absolutely” should not prepare for a downturn in economic conditions.
Lutnick, speaking on Sunday’s episode of “Meet the Press” on NBC, emphasized Trump’s policy to impose reciprocal tariffs against foreign products.
There will be no recession here in America. The global tariffs will come down, because Trump said: “You want us to charge you 100%?” Lutnick stated that we will charge 100 %,'”.
Trump insisted his policies will “unleash America”, and lead to unprecedented economic growth.
However, market analysts remain skeptical.
The talk about tariffs can be worse in many ways than their implementation, according to David Bahnsen. He added that tariff talks, reversals, speculation and chaos are only a source of uncertainty.
He said that he did not think the Administration knew how the situation with tariffs would play out. But if I had to bet, I’d say it will last long enough for the economy to suffer, at least in the first quarter of the year. And that the deal will eventually come to different countries, making everyone question why all the fuss was made.
Economists debate recession risks
Some economists think the US economy is already in a slump.
Peter Berezin (chief global strategist, BCA Research) placed the probability of a contraction at 50% last week. He said that the month of March may mark the beginning of an official economic contraction.
Berezin’s worst-case scenarios shows the S&P 500 dropping to 4,200 due to a drop in earnings for corporations and investor confidence.
In an interview with MarketWatch, he stated: “I believe that the driver for this will be recession.”
The outlook of investment banks is also being revised.
Goldman Sachs has increased the probability of a recession from 15% to 20%, citing tariffs, higher inflation and lower consumer spending.
Morgan Stanley lowered its GDP growth projection for 2025 from 1,9% to 1.5 percent, citing that the trade policies were more aggressive than expected.
Morgan Stanley’s economists said in an email to their clients that “whilst we had expected policies to constrain growth, such as tariffs and immigration restrictions to be implemented first, the severity of these measures has far exceeded our expectations.”
The economic data is showing signs of weakness
The recent US economic data raises additional concerns.
The consumer spending in January was unexpectedly lower, and the trade deficit increased to $131 billion. Companies rushed to get their goods out before new tariffs were implemented.
In February, consumer confidence fell to its lowest level in over four years.
According to the Atlanta Federal Reserve GDPNow model, the US economy is expected to contract by 2,4% during the first quarter.
This model, while volatile, highlights the increasing risks of economic growth.
Investors wait for inflation data to provide further insight
The markets are now looking forward to the key inflation report due this week.
The monthly consumer and producer prices indexes will provide insight into the persistence of inflation.
Paul Donovan is the chief economist of UBS Global Wealth Management. He warned that Trump’s policies on tariffs are weighing down sentiment.
He said that the markets are starting to worry about growth prospects in 2025.
Trump’s tariff policies have been unpredictable. A series of rapid retreats almost coincide with the announcement of the next tax increase.
The US tariff policy is chaotic, but it still gives companies the opportunity to tell their customers a story about price hikes. Some may even raise prices to prepare for tariffs which are never implemented.
Investors will focus on Trump’s policies to see if they can boost the economy or push it towards a long-term downturn.
The post Trump refuses to rule out recession – What do analysts say? This post may change as new information unfolds
