President Trump’s sweeping tariffs sent the stock market tumbling and recession fears intensifying.
As the dust settles and markets await more information on the outcome of the administration’s 90-day tariff suspension, the pressing question facing investors is to what extent the recent stock market sell-off reflects the effects of a slowing economy.
Market history suggests that if the economy does head toward a recession, stocks could fall further.
“I’m not sure the stock market has fully priced in the possibility of a recession,” Callie Cox, chief market strategist at Ritholtz Wealth Management, told Yahoo Finance.
“Typically when there’s a recession, there’s a bear market or the S&P 500 falls more than it has now.”
As our chart this week shows, the S&P 500 (^GSPC) has fallen more this year in every recession since 1973 than the index’s 18.9% peak-to-trough drop.
In other words, if Trump’s tariffs lead to a recession and the index doesn’t hit new lows, this year’s decline would be the mildest stock market reaction to a recession in at least 50 years.
“The market correction is pretty deep, but it may not be complete if we end up in a recession or if recession fears become more fully realized,” Mike Wilson, Morgan Stanley’s chief investment officer, wrote in an April 13 note to clients.
As economists analyze the impact of Trump’s tariffs, many believe the odds of a recession are rising as the new, steep tariffs are expected to push up inflation and weigh on economic growth.
Goldman Sachs economists recently put the odds of a recession in the next 12 months at 45%, well above the historical average of 15% for any 12-month period. JPMorgan Chase has already issued a forecast for a recession later this year. Renaissance Macroeconomics head Neil Dutta shares the same view.
Mark Zandi, chief economist at Moody’s Analytics, sees a high probability of a U.S. recession, with a 60% chance of a recovery in the next 12 months. Zandi told Yahoo Finance that the U.S. economy might be able to avoid a recession if the Trump administration takes a “downhill approach” and rolls back some of its threatened tariffs.
“It doesn’t feel like that’s going to happen, at least not right now,” Zandi said.
Wall Street strategists have also responded to growing recession fears, with many cutting their price targets for the S&P 500 this year.
Citi, for example, recently cut its year-end price target for the S&P 500 to 5,800 from a previous target of 6,500. At least nine other Wall Street banks tracked by Yahoo Finance have also cut their S&P 500 forecasts in response to Trump’s tariffs. Teams at Goldman Sachs, Bank of America, Evercore ISI, RBC Capital Markets and JPMorgan Chase all expect the S&P 500 to be at 5,700 or lower by the end of 2025.
The index closed at 5,282 on Thursday.
That makes Citi’s forecast relatively optimistic, reflecting 9% upside from current levels and the prospect of successful trade talks and a reduction in effective U.S. tariffs over the next 90 days.
If talks fail to materialize and tariffs take a bigger toll on the economy, Citi’s bearish forecast sees the S&P 500 fall to 4,700 by year-end.
“This is more like a sharp economic slowdown. This is a real recession. This is a real blow to long-term corporate earnings growth… Right now, the market is not pricing in that additional risk,” Citi equity strategist Drew Pettit told Yahoo Finance.
