It’s chaos out there in stocks and markets – well the US markets that is. Over the past month, the Nasdaq and S&P500 have dropped +13% and +9%, respectively. And there doesn’t seem to be any bottom in sight right now.
But it’s not surprising.
Tit-for-tat tariffs are driving uncertainty and volatility.
And even more worrying…
Concerns about a recession, a bear market, and higher prices are rising
US consumer and business sentiment have plunged.
US consumer spending has slowed. In fact, January’s consumer spending numbers registered its biggest month-over-month drop in four years. And the recent earnings results from retailers such as Target, Best Buy and Walmart confirm this trend.
And GDP estimates look dismal.
The Federal Reserve Bank of Atlanta, estimated US Q1 GDP contracting -2.8%…the same model-based projection estimated growth of almost 3% in early February.
A 5.8% drop in GDP growth estimates is quite the revision. And this estimate doesn’t include the recent tit-for-tat escalations in tariffs.
In fact, the average US tariff rate on all goods today is at the highest rate since around World War 2. This jump from 2.3% to 11.5% effectively decreases GDP by about 1.3%, according to the Federal Reserve.
So, any further tariffs will reduce economic growth even more.
And when it comes to stocks…Today’s high valuation requires earnings. You’re not going to get earnings growth if there’s a potential recession or even lower economic growth on the way.
So, are you really surprised with the market’s negative reaction?
You shouldn’t be.
Moreover, don’t be surprised if things get worse in the short-term.
More pain ahead for investors and consumers…
What you must know is that President Trump doesn’t care about short-term price movements on Wall Street right now. Stocks can go lower, and the economy can hit a rough patch. He’s admitted this a few times now.
However, he’s confident that in the long run…his policies of tax cuts, tariffs, manufacturing reshoring and DOGE savings will work and make “America Great Again”.
Of course, we’ll have to wait and see.
As for tariffs, ultimately, I don’t think many will stay in place throughout the year. I think America, Canada and Mexico will make a deal, which may provide some economic relief. On the other hand, a deal between America and the EU/China will likely be much harder to agree – due to rising tensions.
That’s just my guess. President Trump is unpredictable after all.
Ultimately, in the short term, I expect a weaker US economy, higher inflation, and further losses in US stocks. So, if you’re thinking about “buying the dip” today, perhaps it’s wise to wait until the outlook is clearer.
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