A dramatic shift in sentiment is sweeping across Wall Street, as stock markets plunge, consumer confidence falters, and economists slash their growth forecasts for the year.

The specter of a potential recession is looming large, fueled by anxieties over President Trump’s aggressive trade policies and their potential impact on the US economy.

This stark reversal of fortune marks a significant departure from just a month ago, when stock indices were soaring to record highs and consumer sentiment was on the rise.

Many business executives were optimistic that Trump would deliver on his promises of tax cuts and deregulation, which they anticipated would stimulate robust economic growth.

However, those hopes have been dashed as Trump has aggressively implemented tariffs – and tariff threats – against the United States’ largest trading partners.

On Tuesday, Trump escalated the trade conflict by increasing import taxes on steel and aluminum from Canada to 50%, up from 25%, in response to Ontario’s imposition of duties on electricity it sends to the United States.

The resulting economic uncertainty has rattled financial markets, with analysts warning of potential capital flight from Wall Street.

Concerns are mounting that Trump’s wavering tariff policy could stoke inflation, disrupt supply chains, and ultimately push the US economy into recession.

The pervasive uncertainty has led many companies to adopt a more cautious stance, holding back on planned investments and lowering their financial forecasts.

Delta Air Lines, Kohl’s, and Walmart are among the latest to join the chorus of corporations expressing concerns about the deteriorating economic outlook.

The tech-heavy Nasdaq stock index officially entered a correction last week, defined as a 10% decline from its most recent peak, while the broader S&P 500 neared that threshold in the previous session.

These market indicators underscore the growing sense of unease among investors.

Analyst outlook: lower targets, higher risks

Reflecting the increasingly pessimistic outlook, Goldman Sachs recently became the first major brokerage to lower its 2025-end target for the S&P 500 index, reducing it from 6,500 to 6,200.

At the same time, JPMorgan is now estimating a roughly 40% probability of a recession, a notable increase from the 30% chance it assigned at the start of the year.

Harvard University economist Larry Summers, a former treasury secretary for the Clinton administration, recently estimated the odds of a recession at 50-50, highlighting the detrimental impact of Trump’s trade policies.

“All the emphasis on tariffs and all the ambiguity and uncertainty has both chilled demand and caused prices to go up,” Summers posted on X.

We are getting the worst of both worlds – concerns about inflation and an economic downturn and more uncertainty about the future and that slows everything.

Recession signals

While the economic outlook remains uncertain, several indicators are being closely watched for potential signs of a looming recession.

One such signal is the real-time economy tracker maintained by the Federal Reserve’s Atlanta branch.

Last week, this tracker showed a sharp downshift, projecting that the US economy will shrink at an annual rate of 2.4% in the first three months of this year.

While the Atlanta Fed’s tracker is not technically a forecast, it provides a valuable real-time assessment of economic activity.

The recent negative reading was largely driven by trade data showing a surge in imports in January, likely reflecting an attempt by businesses to get ahead of the implementation of tariffs.

Most economists still expect the US economy to expand in the first quarter, albeit at a slower pace.

JPMorgan, for example, sees growth slowing to just 1% at an annual rate in the first quarter, down from 2.3% in last year’s fourth quarter.

Trump’s Defense: ‘a period of transition’

Despite the growing concerns, Trump has sought to downplay the recession risks, describing any potential downturn as merely a “period of transition” as his policies take effect.

However, Trump’s recent remarks, in which he refused to rule out a recession during a Sunday interview on Fox News, appear to have further fueled market anxieties.

“I hate to predict things like that,” Trump said, before adding, “There is a period of transition, because what we’re doing is very big. … It takes a little time.”

While some of Trump’s economic advisors have dismissed recession concerns and expressed confidence in continued economic growth, the overall tone remains one of caution and uncertainty.

In addition to trade policies, other factors could also negatively impact the US economy.

The Department of Government Efficiency (DOGE), led by Elon Musk, is actively pursuing cuts to federal government jobs and spending, which could weigh on economic activity.

Furthermore, recent reports from major commercial airlines indicate a slowdown in government travel, reflecting a broader trend of reduced spending and investment within the public sector.

Delta Air Lines, for example, cited declining consumer and business confidence amidst widespread economic uncertainty as a key factor weakening demand.

The final word

While various economic indicators offer clues about the health of the economy, the official declaration of a recession rests with the National Bureau of Economic Research (NBER), a group of economists whose Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

The committee considers a wide range of data points, including trends in hiring, income, employment, inflation-adjusted spending, retail sales, and factory output.

However, the NBER typically doesn’t declare a recession until well after one has begun, sometimes as long as a year after the fact.

As the US economy navigates this period of uncertainty, investors, businesses, and policymakers will be closely watching for any signs of further weakness and carefully assessing the potential for a recession to take hold.

The coming months will be critical in determining whether President Trump can successfully steer the economy away from the brink and restore confidence in his economic vision.

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