- Market participants are increasingly aware that a US recession is on the horizon.
- Trade wars will hurt the US economy, which depends on exports and imports.
- This week, the US will release its wholesale and consumer inflation reports.
Equities collapsed on Monday, with the Nasdaq, S&P 500 and Dow Jones all recording significant daily losses. The decline came as risk sentiment soured due to US recession worries. Trump’s tariffs and the subsequent trade wars have sent investors scrambling for safety in other assets.
S&P 500 (Source: Bloomberg)
Market participants are increasingly aware that a US recession is on the horizon. This sent the S&P 500 to fresh lows. At the same time, uncertainty over whether Trump will implement tariffs on Canada and Mexico has hurt risk sentiment. When he took office in January, the equity markets cheered robust growth prospects. However, Trump’s trade policies have shaken investors confidence. Trade between the US and its partners risks dropping fast if the US president maintains his aggressive stance.
Trade wars will hurt the US economy, which depends on exports and imports. A decline in trade means companies will suffer, and the stock market will keep plunging. At the same time, major sectors that drive the economy will slow down, likely leading to a recession.
On Sunday, Trump avoided predicting a likely recession. This indicated he was okay with whatever outcome and would power on with his tariffs. In a month, he might again implement tariffs on Canada and Mexico. Moreover, the US president has promised a reciprocal tariff starting in April.
Meanwhile, investors are also watching US economic data for clues on Fed rate cuts. On Friday, the nonfarm payrolls report revealed slower-than-expected job growth in February. At the same time, the unemployment rate unexpectedly increased. The downbeat figures prompted traders to price three rate cuts this year.
However, Powell maintained a cautious tone, noting a lot of uncertainty regarding the impact of Trump’s tariffs. Therefore, the central bank is in no hurry to cut rates. However, traders will closely monitor incoming data for policy clues.
This week, the US will release its wholesale and consumer inflation reports. Economists expected softer figures this month, with the annual number easing from 3.0% to 2.9%. Meanwhile, the monthly figure might drop from 0.5% to 0.3%. Cooler than expected numbers will increase Fed rate cut expectations. However, this might only briefly boost equities. The downtrend will remain as long as tariff uncertainty continues.
