The recent weeks have proven challenging for the stock market, as both the S&P 500 and the Nasdaq-100 have entered a correction phase, dropping by at least 10% from their peaks. Numerous factors have contributed to this downturn, primarily the increase in policy uncertainty.
In recent months, the Trump administration has enacted rapid and significant policy changes, particularly concerning tariffs. Some of these policies have been implemented, others delayed, reversed, or still under review. This has contributed to the Trade Policy Uncertainty Index reaching an all-time high in February, while the broader Economic Policy Uncertainty Index has risen to levels comparable to those seen during the COVID-19 pandemic, the Global Financial Crisis, and the 2012 “fiscal cliff” episode.
Surveys indicate that increasing uncertainty has led businesses and consumers to exercise caution. As a result, small businesses are scaling back hiring plans and capital expenditures, while consumers express a lower inclination to make significant purchases such as homes, cars, and appliances.
Increased uncertainty could potentially slow economic growth this year. Both Goldman Sachs and the OECD have recently adjusted their U.S. growth projections for 2025 downwards to 1.7% and 2.2%, respectively. Despite this, such growth rates are not indicative of an imminent recession. Market corrections frequently occur outside recession periods.
While policy clarity would benefit the economy, it is important to note that the economy ended 2024 on solid ground, providing some resilience against negative impacts. Early data from February, when the tariffs took effect, shows the economy added 151,000 jobs, and core retail sales rose 1% from January.
Therefore, before jumping to conclusions about a recession, it is advisable to await more comprehensive data. The economic fundamentals remain robust enough to withstand the current uncertainties, and further evaluation is required to determine long-term impacts.
The information provided is for informational purposes and should not be construed as investment advice. Individuals should conduct thorough research and seek professional securities advice before making investment decisions.
