The stock market has been facing challenges in recent months, with even the most promising companies struggling to maintain their momentum. Investors who believed that certain firms would thrive under the Trump administration are now grappling with a different reality. The economic landscape has shifted, and investor sentiment has become more cautious.
Global dynamics and geopolitical tensions have also contributed to the volatility in the market. Mark Zandi, chief economist at Moody’s, emphasized the impact of declining sentiment on the economy. “Clearly sentiment is on its back heels.
You can see that in business surveys, in consumer surveys, and, of course, the stock market,” he said. The S&P 500 experienced a correction last week, falling 10% from its February 19 peak. This marked the first correction for the stock market since October 2023.
Treasury Secretary Scott Bessent downplayed the situation, stating that corrections are “healthy” and that the administration will withstand market volatility while it pursues its goals. However, dismissing the sell-off could be imprudent, as the stock market has a material impact on the broader economy.
Cautious mood impacts market stability
Wall Street strategists have taken notice of the declining sentiment. RBC strategist Lori Calvasina recently lowered her year-end S&P 500 price target, citing “more evidence that vibes have been weakening.” Similarly, Ed Yardeni lowered his “best-case” year-end price target for the S&P 500, citing heightened economic uncertainty as a reason for stock valuations to decline. Goldman Sachs also recently upped its recession probability to 20% from 15%.
Data is mounting that consumers and businesses are under pressure, with more households reporting not having enough set aside to cover a $2,000 emergency and a growing number of public companies citing policy uncertainty as a significant concern. The next key event for investors to watch is April 2, when Trump may implement reciprocal tariffs. Zandi warned that if a large number of trading partners respond in kind, it could be the fodder for a recession.
However, there is still time for Trump to pivot. If a deal to avoid a trade war materializes, it could clear up some of the uncertainty affecting markets. Zandi noted that Trump is quite good at changing course and declaring victory.
The real risk for Trump is being rejected at the polls. Yardeni predicted that Trump might relent to avoid a recession, as a downturn would likely cost Republicans their majorities in both the House and the Senate in the 2026 mid-term elections. Zandi concluded, “I think it is dangerous to ignore those darkening vibes, both from a broader economic perspective and politically.”
