Economists who predicted a zero chance of a 2025 recession just last year are now facing the possibility. The stock market’s recent surge of growth has come to an abrupt end, with fears of a sputtering US economy taking center stage.
The S&P 500 fell 1.8% on Thursday, bringing its decline over three days to 7%. The tech-heavy Nasdaq 100 finished the day in correction mode, down 10% from recent highs. Policy decisions coming out of the White House are generating intense uncertainty, with investors fearing a prolonged trade war will send the US economy into a slump.
The GDPNow Tracker has adjusted considerably since earlier this year and now estimates first-quarter real GDP at a negative 2.4%. This shift in forecast has investors breaking out the recession playbook. Rising uncertainty around President Donald Trump’s protectionist trade agenda is causing investors to flee risk-assets, pushing the market into negative territory for the year.
The decline is not limited to large-cap stocks; small-cap shares in the Russell 2000 are also experiencing significant declines, with a 7% year-to-date drop and a 16% fall from their November peak. The threat of higher import costs from tariffs is posing a risk to smaller firms, and industry leaders have spoken out against the impact of Trump’s trade policy.
The bond market is also providing clues about investor sentiment. US Treasurys are experiencing a surge in demand, with yields plunging from 4.8% in January to around 4.2% on Thursday. However, this trend could be a sign that investors expect the Federal Reserve to cut interest rates in response to a recession.
Analysts now predict up to three quarter-point rate cuts by the end of the year, a significant increase from just one cut predicted about a month ago. The rise in inflation has made investors more cautious, and the central bank is reluctant to loosen financial conditions further.
Source: https://www.businessinsider.com/stock-market-recession-selloff-russell-small-caps-treasury-yields-economy-2025-3