S&P 500 and Nasdaq-100 Enter Correction Amid Rising Uncertainty
Recent weeks have proven challenging for stock markets, as both the S&P 500 and the Nasdaq-100 have entered correction territory, indicating a decline of at least 10% from their peaks.
Several factors have contributed to this downturn, with a significant one being increased policy uncertainty. In recent months, the Trump administration has implemented rapid policy changes, particularly concerning tariffs. Some policies have been enacted, others delayed, reversed, or are under study.
This unpredictability has led to a surge in the Trade Policy Uncertainty Index, reaching a record high in February. Additionally, the broader Economic Policy Uncertainty Index has risen to levels not seen since the COVID-19 pandemic and the Global Financial Crisis, as well as the 2012 fiscal cliff episode.
Impact of Uncertainty on Consumers and Small Businesses
The heightened policy uncertainty has complicated decision-making for businesses and consumers, leading to a delay in investment and spending while awaiting further clarity. Surveys of small businesses and consumers reflect this sentiment.
Businesses are reducing hiring plans and slowing capital expenditures, such as investments in equipment and facilities. Meanwhile, consumers report deteriorating prospects for major purchases, including homes, cars, and appliances.
Potential Impact on Growth and Recession Concerns
As businesses and consumers hold back on spending and investment due to uncertainty, there could be a negative impact on growth. Goldman Sachs and the OECD have both revised their projections for US growth in 2025, lowering them to 1.7% and 2.2%, respectively.
However, a growth rate around 2% in real GDP is not typically indicative of a recession. Despite market corrections occurring outside recessions regularly, current economic conditions have led some to mistakenly believe the US economy is on the verge of a recession. Yet, recent data reveals the economy added a substantial number of jobs and saw a rise in “core” retail sales.
While the economy would benefit from increased clarity, it remains on a stable foundation, allowing for some resilience against economic shocks. It is advisable to refrain from recession speculation until more concrete data is available.
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