Financial markets that spent two years anticipating a recession that never came took two days to price in surging odds of a recession that might come by invitation.
With one of the nastiest two-day selloffs in history following President Donald Trump’s launch of punitive tariffs on most trading partners, the stock market is in one of those precarious spots: Both tightly coiled for a near-term bounce soon, but not quite priced for the full fundamental implications of this policy as now contemplated.
Bespoke Investment Group gave voice to this uncomfortable moment, in which markets that are built to produce the “wisdom of crowds” through rational, collective price-setting are lashed to the whims a president channeling decades’ worth of anti-trade feelings through the executive power to declare “emergency” tariffs.
S&P 500 Index
RT Quote | Exchange | USD
5,074.08
-322.44 (-5.97%)
Last | 04/04/25 EDT
WATCHLIST+
S&P 500, 5 days
“We’d love to say that investors should watch a specific level or indicator for signs of a short-term low, but at this point, economic data doesn’t matter and the stock market is rudderless,” says Bespoke. “As Friday’s employment report showed, the economy had been holding up fine. The only thing that matters at this point rests on the decision of one man’s Truth Social account.”
KKR head of global macro Henry McVey details the economic blow that would be struck by full implementation of tariffs as laid out by President Trump: “Given both the aforementioned breadth and depth of tariffs, growth will be dented more than we originally anticipated, with a mild U.S. recession risk now on the table in coming quarters. As context: the tariffs represent a U.S. fiscal tightening on the order of 2.5% of GDP, which — all else equal — could take the aggregate U.S. federal tax rate to the highest level this century.”
There’s a line of argument that the tariff rates are so extreme, arrived at through mathematical means so willfully contorted, that they simply can’t stand unmodified.
Longtime Wall Street economist and strategist Jim Paulsen of Paulsen Perspectives, late Friday on CNBC’s “Closing Bell Overtime,” hinted at such a reason to anticipate some kind of walk-back in the tariff package given the market response. Namely, that “the stupidity of what we’re doing becomes more obvious, if you will. The stupidity of enacting a massive tax increase on the entire global economy at this point doesn’t make much sense. And I think it doesn’t make much sense for the Fed to stubbornly not want to ease.”
Federal Reserve Chair Jerome Powell on Friday reiterated that he sees “no hurry” to act on rates and noted again the risk of inflation expectations becoming stuck at elevated levels. This was taken by the market as a signal that truly severe trouble in the real economy or further extremes in capital-markets stress levels – in the form of credit spreads and other systemic indicators – would be needed to prompt a Fed rate cut. Certainly nothing to wish for.
Source: https://www.cnbc.com/2025/04/05/sp-500s-10percent-2-day-collapse-from-trumps-tariff-shock-ranks-among-the-deepest-in-history.html