Recession Fears

Market Musings 3/11/2025

Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!

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#Recession fears spark a market plunge, but are we really headed for a #Recession?

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Over the weekend, the White House refused to rule out that its trade policies could cause a #Recession. In reaction, the S&P 500 tumbled almost -3% Monday as #Recession fears surge.

So what’s going on?

Assuming you haven’t been living under a rock for the past month, the US’s new policy direction particularly #Tariffs have created significant uncertainty for the markets.

For the past couple of years, the Fed has been slowly working to bring down post-COVID #Inflation without destabilizing the economy too much and weaken #LaborMarkets with unemployment. In anticipation, markets have optimistically ripped to all-time highs－hit just last month.

So, what drove this?

One－investor optimism for a so-called #Goldilocks soft landing－which is slowing #Inflation without leading to a #Recession.

Two－a more favorable business environment.

However, the market has tumbled -9% in just the few weeks since.

So what’s changed?

First, the elephant in the room, #Tariffs. #Tariffs are destabilizing the business environment and likely leads to an increase in #Inflation.

Investors likely thought the threat of tariffs were just a negotiation tactic and wouldn’t actually be acted upon this broadly to cause a trade war.

Second, the consumer. #ConsumerConfidence have been extremely resilient since COVID despite a big step up in prices due to #Inflation.

However, that resilient sentiment has significantly deteriorated in the past month driven by #Inflation fears from #Tariffs.

And finally, the White House backstop. At the very least, investors were hoping the White House mindset would shift if the economy is impacted and would step in to prevent a #Recession.

However, over the weekend, the White House avoided answering the question of if the US could facing a #Recession. That spooked investors hence the market tumble Monday.

So what now? Are we headed for a #Recession?

We’re not guaranteed a #Recession at this point yet, but getting tipped over towards it.

As we’ve said before, we’re more bearish near-term and likely need to see more stability for markets to regain confidence. Easing up on #Tariffs could go a long way towards that and #ConsumerConfidence can be fickle and improve quickly if the negative news cycle fades. However, we haven’t seen any indication that this emerging #Tariffs trade war will get resolved soon.

So we’ll likely have to see how the actual impact plays out. We’ll definitely be paying close attention next few months for #ConsumerConfidence changes, if #LaborMarkets can continue to stabilize and hopefully #Inflation growth can slow－starting with the CPI on Wednesday.