Wall Street is agonizing over the triple threat that could bash through the U.S. economy
President Donald Trump’s
election victory
initially had the stock market
in raptures
. The S&P 500 surged 6.25% from Nov. 5 to Feb. 19, when the index hit a new record high above the $6,145 mark. The S&P is down more than 3% since, however, as soft
economic data
and renewed
tariff threats
from the Trump White House elevates Wall Street’s concern about the state of the U.S. economy.
Markets hate uncertainty, the saying goes, and investors are desperately awaiting clarity on Trump’s plans for taxing imports as the Street debates whether the president’s
economic agenda
will slow growth, reignite inflation, do both—or result in none of the above. Traders got more bad news on Monday, as the Federal Reserve Bank of Atlanta’s
GDPNow tracker
signaled a 2.8% contraction for the first quarter of 2025.
To be sure, that data is volatile. As recently as Feb. 26, the tracker pointed to GDP growth of 2.3% before dropping to -1.5% on Friday. Still, Jay Hatfield, the CEO of Infrastructure Capital Advisors, highlighted those forecasts last week as he
warned
the U.S. economy is headed into recession.
Hatfield, whose firm manages ETFs and a series of hedge funds, has said that tariffs are often misunderstood as inflationary, and he expects DOGE’s
mass layoffs
of federal workers to cause a significant uptick in unemployment. In his eyes, however, the biggest danger to the economy is the
Federal Reserve
. He believes the central bank has been overly hawkish on monetary policy, particularly after it decided not to cut interest rates at its January meeting.
“Normally, in a recession, you get a decline in housing, investment, and construction,” he told
Fortune
, “and that’s exactly what we had over the last three quarters.”
Tariffs, DOGE layoffs, and immigration policy loom large
Of course, it will likely take a beat before the market reaches any consensus about the direction of the economy. Two consecutive quarters of contraction is the unofficial rule of thumb for a recession, with the National Bureau of Economic Research eventually making an official ruling.
Torsten Sløk, chief economist at
Apollo Global Management
, isn’t going that far. The combined effect of government layoffs and tariffs, the latter of which increase prices and lower demand for foreign goods, he said, is best viewed as a “modest stagflation shock.”
“In other words, DOGE and tariffs combined are a mild temporary shock to the economy that will put modest upward pressure on inflation and modest downward pressure on GDP,” he said in a
note
on Saturday.
Discontent about
inflation
helped Trump return to the White House, but more everyday Americans have become concerned about the economy,
cutting spending
in January at the fastest pace in four years. Famed consumer sentiment surveys from The Conference Board, a think tank, and the University of Michigan also came in weak.
After The Conference Board’s
Consumer Confidence Index
dropped to its lowest level since August 2021, Stephanie Guichard, the not-for-profit’s senior economist, said respondents who feared the impact of tariffs, government spending cuts, and mass deportations of immigrant workers were likely to be more cautious.
“I think it’s impossible to ignore the surveys,” Scott Feiler, a consumer sector specialist in Goldman Sachs’ consumer banking and markets division, said on a
firm podcast
Friday. “Those are some big drops.”
Even though markets are skeptical Trump will institute permanent 25% tariffs on goods from Canada and Mexico—America’s two biggest trading partners—”crying wolf” on taxing imports has economic implications, said Paul Donovan, chief economist at UBS Global Wealth Management.
“There is some evidence of consumers buying earlier out of fear of tariffs (perhaps more Democrat consumers than Republican),” he wrote in a
note
Friday. “Firms may raise prices ahead of tariffs. Because businesses invest in an uncertain future, increasing uncertainty affects investment risks.”
Nonetheless, three-quarters of analysts polled by Goldman Sachs said they did not expect firms in their sectors to delay or cancel investment as a result. Still, Goldman noted the Dallas Fed’s
surveys
of Texas businesses revealed many firms expect tariffs to increase costs and believe trade policy uncertainty has weighed on demand. Respondents also indicated that their reliance on foreign workers had increased, with 18% of those polled saying they expected
immigration policy
to impact their ability to hire and retain workers.
That leaves plenty for the Street to mull over as investors wait for more news from the White House.
