President Trump’s tariff-heavy economic policy is casting a long shadow over Wall Street. Despite some initial panic and sharp sell-offs, many strategists say the markets still haven’t fully priced in a looming recession. And if history is any guide, more volatility may be ahead.
History Says There’s Room to Fall
Recessions and bear markets usually go hand-in-hand. But so far in 2025, the S&P 500 (^GSPC) has dropped just 18.9% from its recent peak, making it the mildest market drop during a recession since 1973 — if this indeed turns into a recession.
“I’m not sure the stock market has quite processed the probability of a recession,” said Callie Cox, chief market strategist at Ritholtz Wealth Management. Her concern? Stocks have dipped, yes, but not enough to reflect a serious economic contraction.
The Recession Watchdogs Are Barking
According to economists:
- Goldman Sachs puts the odds of a U.S. recession in the next year at 45%, triple the historical average.
- Moody’s chief economist Mark Zandi is even more pessimistic, with a 60% probability.
- JPMorgan, Renaissance Macro, and Morgan Stanley are all waving similar caution flags.
Why the concern? Trump’s tariff spree is inflationary, disruptive to global trade, and potentially recessionary. While the White House has temporarily paused some tariffs for 90 days, many believe it’s too little, too late.
Market Optimism Feels Premature
Despite the grim outlooks, stocks are holding on better than expected. The S&P 500 closed Thursday at 5,282, well above recession bear-case scenarios. Strategists argue that investors are banking too heavily on a “soft landing” — or even a successful resolution to ongoing trade talks.
Citi’s year-end forecast for the S&P 500 now sits at 5,800, down from 6,500 earlier this year. If things go south, their bear-case prediction falls to 4,700 — roughly 11% below current levels.
That may not sound apocalyptic, but it would mark a significant hit to corporate earnings and long-term growth expectations.
The Danger of Complacency
“The market correction is well advanced, but probably not complete,” warned Morgan Stanley’s Mike Wilson. The risk? That investors are treating current conditions as a temporary dip — not a potential prelude to economic contraction.
And with Trump’s baseline 10% global import tariff already in effect, further shocks are very much on the table.
So What Should Investors Do?
With potential recession risk still not fully baked into prices, now may be the time for a portfolio health check. Look at sectors that are historically resilient — like healthcare, consumer staples, and utilities. Reduce exposure to highly cyclical areas that depend heavily on global supply chains.
If trade negotiations improve, markets could rebound. But if they don’t — and history says they often don’t — this could be just the first act of a larger downturn.
