Stock Market May Not Have Fully Priced In Recession: Expert Insights and Market Implications
As global market conditions continue to fluctuate, heightened recession fears have emerged due to various economic factors, notably President Trump’s broad tariff policies. The stock market has already experienced significant turbulence, but market experts suggest that the full impact of an impending recession may not yet be reflected in current stock prices. As recession concerns escalate, questions loom over how much further the stock market may decline.
Tariffs and Economic Slowdown: A Trigger for Recession Fears?
The introduction of sweeping tariffs by President Trump has caused the stock market to take a considerable downturn. The uncertainty surrounding the potential consequences of these tariffs has fueled recession concerns, leaving investors anxious about how much of an economic slowdown has already been priced into the market.
Following a 90-day tariff pause, markets are awaiting more information on the administration’s plans and how they might affect the broader economy. However, experts warn that the current market sell-off may not fully account for the possibility of a recession.
Callie Cox, Chief Market Strategist at Ritholtz Wealth Management, commented on the situation, expressing skepticism about whether the stock market has fully processed the potential for a recession. Cox explained, “Usually when you get a recession, you get a bear market, or you get the S&P 500 falling a lot more than it has.” This observation suggests that the market may not have yet adjusted for the worst-case scenario, where a recession could lead to a deeper market correction.
S&P 500 Drawdown: A Mild Reaction Compared to Past Recessions?
A closer look at market history reveals a concerning trend. The S&P 500 index (^GSPC) has experienced a drawdown of approximately 18.9% from its peak to trough this year. This decline, while significant, may still be less severe than what could be expected during a typical recession.
The chart below highlights that the S&P 500’s current pullback is smaller than the drawdowns observed during previous recessions since 1973. If a recession were to occur as a result of President Trump’s tariff policies and the index fails to reach new lows, this year’s stock market reaction could be the mildest in over 50 years.
Recession Odds Are Rising: Experts Weigh In
As the market attempts to adjust to tariff-driven uncertainty, economists are increasingly concerned about the likelihood of a recession. Many experts point to the economic strain that high tariffs could place on inflation and growth as key reasons behind their gloomy outlook.
Goldman Sachs economists have recently raised the odds of a recession occurring within the next 12 months to 45%, well above the historical average of 15%. Similarly, JPMorgan and Renaissance Macro have both forecast a recession later this year.
Moody’s Analytics Chief Economist, Mark Zandi, has placed the odds of a recession even higher, estimating a 60% chance that the economy will enter a downturn in the next 12 months. However, Zandi noted that if the Trump administration were to ease some of its tariff policies, the economy could avoid a recession, though he does not foresee this happening in the near future.
Market Responses: Lowering Price Targets
Wall Street analysts and strategists have already adjusted their predictions in response to rising recession fears. Many have lowered their price targets for the S&P 500, anticipating further volatility in the coming months. As concerns over inflation, slower economic growth, and the potential for further tariff hikes persist, market participants are bracing for a prolonged period of uncertainty.
Mike Wilson, Chief Investment Officer at Morgan Stanley, shared his view on the matter in a note to clients, stating that while the market correction is already underway, it may not yet be complete. Wilson suggests that further declines are possible if the economy moves closer to a recession or if market fears become more pronounced.
Conclusion: A Crucial Time for Investors
The ongoing uncertainty surrounding President Trump’s tariff policies, along with rising recession odds, has created a volatile environment for investors. With many experts predicting a downturn in the economy, the stock market’s reaction to these events could have lasting implications for the remainder of 2025.
For investors, the key takeaway is that while the stock market has already experienced significant declines, there is a possibility that further corrections may be on the horizon. As the global economy faces mounting challenges, the stock market may still have to adjust fully to the risks of an impending recession.
photo from: Vox
