Is recession on the cards for the US?

Stock Market Weakness & Tech Selloff

The U.S. stock market has been on a downward trajectory since February 2025, triggered by disappointing earnings reports from the Magnificent 7 tech giants—Apple, Microsoft, Alphabet (Google), Amazon, Nvidia, Meta (Facebook), and Tesla.** While these companies still posted growth, their results fell short of market expectations, leading to a decline in stock prices.

This initial tech weakness quickly spread to the broader market, fueled by concerns over trade policies, inflation, and overall economic uncertainty. Investors, who began the year optimistic despite high stock valuations, are now more risk-averse, leading to a contraction in stock market multiples—meaning investors are willing to pay less for each dollar of earnings compared to two months ago.

Impact of Tariffs & Rising Uncertainty

A major driver of this market turbulence has been President Donald Trump’s trade policies. In February, the administration imposed:

25% tariffs on imports from Mexico and Canada
10% tariffs on Chinese goods

While initially paused after negotiations, the tariffs were eventually enforced, prompting retaliatory measures from China, Canada, and the European Union. As these tariffs took effect, businesses have struggled to navigate rising costs, supply chain uncertainties, and potential inflationary pressures.

This policy-driven economic uncertainty has made it difficult for companies to plan ahead, resulting in market volatility and risk repricing across sectors. Investors are now pricing in lower expectations for corporate earnings, leading to declines in stock valuations.

Consumer & Business Sentiment Declining

Alongside market concerns, consumer confidence has taken a hit.

The University of Michigan’s Consumer Sentiment Index fell 11% in March, reaching its lowest level since November 2022.
Major retailers like Walmart and Target have warned about a pullback in consumer spending, citing financial strain among households.
Over 50% of Americans now report having less than $500 in savings, suggesting household budgets are stretched and spending could slow further.

As uncertainty builds, businesses are bracing for lower demand, while consumers cut back on discretionary spending amid inflation worries.

Rising Recession Risks & Federal Reserve’s Response

The combination of slowing economic growth, rising inflation expectations, and market volatility has heightened fears of a looming recession:

JPMorgan has raised the probability of a U.S. recession to 40%, a notable shift given that major banks are typically optimistic.
The Federal Reserve has decided to hold interest rates steady at 4.25-4.5%, citing the need for further clarity on how the economy reacts to Trump’s economic policies.
Inflation expectations for the next year have risen to 4.9%, the highest level since November 2022, raising concerns about a potential stagflation scenario—where economic growth slows, but inflation remains stubbornly high.

Stock Market & Currency Pressures

Tech stocks have been particularly vulnerable, with the Nasdaq underperforming for most of the year due to:

Overvaluation concerns
Trade war fears
Rising bond yields and currency movements

A strengthening Japanese yen has further pressured the market, forcing investors to unwind “yen carry trades”—a strategy where traders borrow yen at low interest rates and invest in riskier assets like U.S. tech stocks. The unwinding of this trade has led to a global selloff in high-growth, high-valuation stocks.

Timeline of Key Events in 2025

February 2025

February 1 – Trump imposes tariffs (25% on Mexico and Canada; 10% on China), citing immigration and trade concerns.
February 3 – A 30-day delay on tariffs for Mexico and Canada is negotiated.
February 10-20 – The Magnificent 7 tech firms report Q4 earnings, disappointing investors and triggering the first wave of the market selloff.
February 27 – Trump reinstates the delayed tariffs on Mexico and Canada, effective March 4.

March 2025

March 4 – Tariffs take effect; China, Canada, and the EU retaliate with counter-tariffs.
March 12 – The Federal Reserve keeps interest rates unchanged but lowers its GDP growth forecast from 2.1% to 1.7%.
March 15 – Investors adjust portfolios, with tech stocks facing continued selling pressure.
March 19 – China announces further trade retaliation targeting U.S. agriculture and technology sectors.
March 20 – U.S. consumer sentiment plunges to its lowest level in over two years, reflecting growing economic fears.

Conclusion

The U.S. economy is currently navigating a perfect storm of challenges: trade policy uncertainty, declining consumer confidence, and a weaker-than-expected corporate earnings season. While the Federal Reserve remains cautious, recession risks are rising as investors adjust expectations for economic growth.

As the market struggles with inflation concerns, political uncertainty, and shifting investor sentiment, the next few months will be crucial in determining whether the slowdown deepens into a full-blown recession or stabilizes with policy adjustments.

Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of a SEBI recognized supervisory body (if any) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

The content in these posts/articles is for informational and educational purposes only and should not be construed as professional financial advice and nor to be construed as an offer to buy /sell or the solicitation of an offer to buy/sell any security or financial products.Users must make their own investment decisions based on their specific investment objective and financial position and using such independent advisors as they believe necessary.Windmill Capital Team: Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. CIN of the company is U74999KA2020PTC132398. For more information and disclosures, visit our disclosures page here.