|
Getting your Trinity Audio player ready...
|
This week has seen significant declines in the U.S. stock market. On Monday, March 11, 2025 the S&P 500 index dropped by 2.7%, while the Nasdaq Composite slid 4%, it’s largest single-day sell-off since September 2022.
The slide comes amid escalating fears of recession among investors. U.S. president Donald Trump and his appointees played into these fears through multiple less-than-optimistic media statements this past weekend.
Trump declined to rule out a recession in a Fox News interview on Sunday morning. When asked if he was expecting an imminent recession, Trump replied “I hate to predict things like that.”
“There is a period of transition because what we’re doing is very big,” he said.
Trump’s grim prognostication was not as direct as the one offered by treasury secretary Scott Bessent on CNBC‘s “Squak Box.”
***
***
“Look, there is going to be a natural adjustment as we move away from public spending to private spending,” Bessent said. “The market and the economy have become hooked, become addicted, to excessive government spending and there’s going to be a detox period.”
On Monday U.S. stock markets, already uncertain about the implications of Trump’s agressive tariff policy, saw a significant sell-off. It is possible stocks have indeed entered the “detox period” predicted by Bessent.
Fourth quarter economic data indicated economic growth was driven by consumer and government spending, with declining private investment failing to drive 2024’s positive GDP.
Early predictions of declining consumer spending have bolstered recession fears. Delta Airlines issued a profit warning late Monday citing an anticipated reduction in consumer confidence.
***
RELATED | TRUMP’S ECONOMIC CHALLENGE
***
Should tomorrow’s release of key inflation data further discourage investors, markets may continue to price in recession fears.
While many pundits profess U.S. economists and central bankers successfully avoided a recession and executed a post-coronavirus “soft-landing” by machine-gunning money into the economy, the market’s trailing twelve-month price to earnings ratio (a measure of how expensive a stock is relative to the earnings of the traded firm) is 28.7, which compared to the market’s historical median of 17.9 indicates a risk of overvaluation in the U.S. equities market.
This potential overvaluation could have been driven by multiple factors, including years of Federal Reserve policy keeping interest rates low in the wake of the 2008 financial crisis to stimulate economic growth. Investors looking for modest returns who might have otherwise elected to keep their funds in bank accounts were forced to invest in equities.
***
Fed policy aside, a number of large tech firms – drivers of a lion’s share of market gains in recent years – have pumped up earning-per-share with stock buybacks. While it’s impossible to quantify the exact impact these buybacks have had on market growth in recent years, the roughly $2.75 trillion pumped back into shareholder’s pockets since Trump’s 2017 tax cuts may have accounted for as much as a quarter of the growth of indexes skewed towards mega-cap firms such as the S&P 500.
Warren Buffett, the investor who has had unparalleled success managing equity investments over the span of decades, has liquidated many of his firm’s equity holdings and is currently sitting on hundreds of billions of dollars of cash, likely because he anticipates a serious market correction.
It seems Trump and his economic advisors understand the near-certainty of a correction, and they even may be attempting to speed along the process in the hope of stabilizing the economy before the 2026 midterm elections.
Individual investors may consider re-evaluating the percentage of their holdings invested in equities. While this week’s slide isn’t a four alarm financial fire, it indicates widespread reluctance to continue pumping money into what may be an overvalued U.S. stock market.
***
ABOUT THE AUTHOR …
(Via: Travis Bell)
Dylan Nolan is the director of special projects at FITSNews. He graduated from the Darla Moore school of business in 2021 with an accounting degree. Got a tip or story idea for Dylan? Email him here. You can also engage him socially @DNolan2000.
***
WANNA SOUND OFF?
Got something you’d like to say in response to one of our articles? Or an issue you’d like to address proactively? We have an open microphone policy! Submit your letter to the editor (or guest column) via email HERE. Got a tip for a story? CLICK HERE. Got a technical question or a glitch to report? CLICK HERE.
