Just 20 days ago, the U.S. stock market was at record highs, the economy was expanding steadily, and a recession seemed far from reality. However, in a dramatic turnaround, concerns about an economic downturn are now widespread.
Worries about a potential recession are rattling the stock market, leading to downward revisions in GDP forecasts. Meanwhile, President Donald Trump and his economic advisors are facing increased scrutiny regarding the possibility of a recession but have so far failed to calm growing unease.
On Tuesday, U.S. stocks declined again, unable to recover from Monday’s sharp losses. The Dow fell by approximately 400 points (about 1%), and the Nasdaq continued its slide after suffering its worst day in two and a half years.
Selling pressure intensified following Trump’s announcement of a 50% tariff on steel and aluminum imports from Canada, with warnings that additional tariffs might follow.
The swift shift in investor sentiment is striking. Just a few months ago, there were concerns that the economy was performing too strongly, yet now, fears of a serious downturn have taken hold.
Despite the market’s turbulence, the U.S. economy does not appear to be on the verge of an imminent recession. Economic growth remained solid at the end of last year, and the first quarter has yet to conclude. Furthermore, the job market remained on an upward trajectory in January and February.
It is far too soon to declare that a recession—a prolonged economic slump marked by widespread job losses, bankruptcies, and foreclosures—is inevitable.
Previous recession alarms have, in hindsight, been overblown. The 2022 panic, for instance, included predictions that placed the likelihood of a recession at 99%.
However, economists now acknowledge that the risk of a recession has increased, even if it remains relatively low.
Uncertainty surrounding Trump’s economic policies—particularly his tariff strategies—is a significant factor fueling market instability.
“This is a very resilient economy. It can take a licking and keep on ticking. But it doesn’t like this uncertainty,” said David Kelly, chief global strategist at JPMorgan Asset Management.
On Monday, former Treasury Secretary Larry Summers expressed concern, telling CNN that a recession is a “real possibility.”
“We’ve got a real possibility of a vicious cycle where a weakening economy leads to weaker markets, and then weaker markets lead to a weakening economy,” Summers said during an interview.
Business Community Faces Uncertainty
Kelly described the economy and financial markets as suffering from an “uncertainty tax” stemming from questions about Trump’s tariffs, federal spending reductions, and widespread federal job cuts.
“Right now, a lot of businesspeople are like deer in headlights. That’sa very dangerous place to be,” he warned.
Bill Dudley, former president of the New York Federal Reserve, echoed these concerns in an interview with CNN on Monday. While he called it “premature” to predict a recession, he acknowledged that the risk has “definitely gone up.” Dudley attributed this to confusion surrounding trade policy.
“Tariffs have two effects: One, they push up prices. And two, they push down growth,” he explained. “The Trump administration is making things worse with this on-again, off-again approach. The uncertainty level is higher than it needs to be.”
Summers emphasized the importance of stability in financial markets, noting that they have instead experienced “surprise after surprise after surprise.”
“All of this emphasis on tariffs and all of the ambiguity and uncertainty created about tariffs has, ironically, both chilled demand, made businesses not invest, made consumers think they should hold off before making big spending commitments,” he said.
Market Declines Intensify
The market turmoil has continued to escalate.
Following its worst week in six months, the S&P 500 declined nearly 3% on Monday. The index has now fallen about 9% since reaching its all-time high on February 19.
“The stock market is losing confidence in the Trump 2.0 policies,” Ed Yardeni, president of investment advisory Yardeni Research, said in a phone interview with CNN. “Everything is at risk now, mostly because of the administration’s rush to establish so many objectives in a very short period of time — with unintended consequences.”
CNN’s Fear & Greed Index, which measures market sentiment, plunged further into “extreme fear” territory on Monday, a sharp shift from the “neutral” rating of just a few weeks prior.
Tech stocks have been particularly hard hit as investors flee from riskier assets in favor of defensive sectors such as utilities, healthcare, and consumer staples.
On Monday, the Nasdaq tumbled 4%—its biggest one-day drop since September 2022. The losses were led by the “Magnificent 7,” a group of seven high-growth tech stocks that previously seemed unstoppable. Tesla saw its stock price plunge 13%, while Nvidia, Apple, and Alphabet each dropped by more than 5%.
Potential Real-World Economic Impact
It is important to note that stock market fluctuations do not always directly reflect economic conditions.
Unemployment remains low at 4.1%, and the U.S. economy continued adding jobs in February, marking the 50th consecutive month of employment growth—the second-longest uninterrupted job growth period in modern history.
However, there is a risk that ongoing market instability could spill over into the broader economy.
Consumer confidence, which has already been declining in recent months, may fall further as Americans become increasingly aware of the market turmoil. A decline in consumer sentiment could negatively impact spending, which serves as the primary driver of the U.S. economy.
Delta Air Lines revised its profit outlook downward on Monday, citing deteriorating corporate and consumer confidence as factors dampening travel demand.
Yardeni raised concerns about the “negative wealth effects” that could arise if market losses continue.
“Trump is going to have to rethink his notion that it’s okay to let the market go down while he is experimenting with tariffs and slashing federal payrolls,” he said.
Another troubling sign is the growing number of corporate bankruptcies.
According to S&P Global Market Intelligence, there were 129 U.S. corporate bankruptcies in the first two months of 2025—the highest figure for this period since 2010, when the country was still reeling from the Great Recession.
Goldman Sachs Raises Recession Odds
Concerns over heightened tariffs prompted Goldman Sachs to increase its recession probability estimate on Friday, though the revision was modest. The investment bank now projects a 20% chance of a recession within the next 12 months, up from its previous 15% estimate.
“We raised it by only a limited amount at this point because we see policy changes as the key risk, and the White House has the option to pull back if the downside risks begin to look more serious,” Goldman Sachs economists wrote in a note to clients.
Essentially, Goldman Sachs is betting that Trump will reverse course on tariffs if a recession becomes more likely.
However, if Trump refuses to change course, the risk of a downturn will increase.
“If the White House remained committed to its policies even in the face of much worse data,” the Goldman Sachs economists cautioned, “recession risk would rise further.”
Another major question is how the Federal Reserve will respond to these economic uncertainties.
Dudley, the former New York Fed president, pointed out that Trump’s tariff policies complicate the Fed’s decision-making by simultaneously pushing prices higher while slowing economic growth.
This could leave the Fed in a difficult position, making it reluctant to either raise or lower interest rates.
“I wouldn’t be surprised if the Fed is locked on hold for many, many months,” Dudley said. He added that while some Wall Street analysts expect a rate cut in May, he believes that timeline is “way too soon.”
The U.S. economy has demonstrated significant resilience in recent years.
It has weathered COVID-19 variants, supply chain disruptions, a 40-year high in inflation, and the Federal Reserve’s aggressive efforts to combat inflation.
However, it now faces a fresh challenge—one largely driven by policy uncertainty in Washington.