The economic outlook for the United States appears increasingly shaky, as the introduction of tariffs under President Donald Trump has escalated fears of inflation and prolonged economic slowdown. The S&P 500, which reached record highs just weeks ago, has experienced significant downturns, shaking investor confidence and raising questions about the country's economic viability.
On February 19, 2025, the S&P 500 closed at a record high of 6,144. But by March 4, it had fallen by 6.3%, caught in the crossfire of trade policy concerns. Trump's new tariffs on Canada and Mexico took effect on March 4, alongside additional levies on China, which had already been implemented earlier. The president has also threatened to extend these tariffs to the European Union, stirring fears of retaliatory measures by affected nations.
Historians of market trends note conflicting narratives about such downturns. Research from Goldman Sachs highlights how 5% pullbacks have historically provided good entry points for investors, often resulting in median returns of 6% over the following three months, with success measured at 84% of the time. Still, many investors remain skeptical, especially as the U.S. economy shows troubling signs.
Recent economic data reveals consumer spending unexpectedly dropped by 0.2% in January, marking its first decline since before the pandemic and the sharpest drop seen over four years. Also, consumer confidence plummeted by 7 percentage points during February, marking the steepest decline observed over three years, according to the Conference Board.
Given these developments, the first-quarter GDP estimate suggests it may decline at an annual rate of 2.8%, representing the steepest drop since mid-2020. Consumer spending, which constitutes nearly two-thirds of the GDP, has been constrained by growing inflation and higher costs due to tariffs.
The Consumer Price Index has seen inflation rise for four consecutive months, leading to fears among consumers about the rising costs of goods. Experts warn this trend directly results from businesses passing the additional costs associated with tariffs to their customers.
Investors were rattled following the S&P 500’s sharp decline on March 4. The index reached an intraday low of 5,732.59, fully erasing gains since Trump’s election. It finished down 1.2% for the day. Similarly, the Dow Jones Industrial Average suffered significant losses, dropping 670 points, or 1.5%, reflecting the widespread market selloff.
Companies felt the ripple effects too. For example, Tesla shares fell due to fears surrounding tariffs affecting car prices, particularly influencing its operations significantly reliant on its assembly plant within China. Bank of America lowered its price target for Tesla from $490 to $380, maintaining its neutral rating. This came after Morgan Stanley had previously designated Tesla as a “Top Pick” within the automotive sector.
Retailers such as Target are also voicing concerns; after reporting expectations of a year-on-year profit decline for the first quarter, CEO Brian Cornell hinted at potentially rising prices due to tariffs imposed by the state. Best Buy’s shares plummeted 12%, as executives warned of potential price hikes related to duties on goods.
Adding to the uncertainty, Chipotle shares declined, reflecting concerns over its reliance on avocados, with 50% sourced from Mexico, raising fears about increased costs if tariffs remain. Overall, as the market continues to react to these uncertainties, the outlook looks turbulent.
Intel's recent fortunes reversed as well. The company saw its stock rally by 40% earlier this year following rumors of Taiwan Semiconductor Manufacturing Co. (TSMC) attempting to take over Intel. TSMC announced plans to invest $100 billion over four years to bolster U.S. chip production, which initially buoyed Intel’s stock, allowing it to surge 5% at market open on March 3. Yet the momentum was short-lived: by the end of the same day, Intel’s stock fell by 5%, and the next day saw another 5% drop, marking total losses of 20% over two days.
Despite this, analysts indicate potential paths to stabilizing conditions. The market historically recovers from downturns, and investors may find grounds to reenter once stock prices have seen significant falls following such tumultuous periods. This sentiment evokes memories of the S&P 500’s 19.8% intra-year drawdown back in 2018, which was followed by swift recovery within months.
While economic indicators initially pointed to strong consumer sentiment and spending, the recent declines signal increasing vulnerability and volatility as global trade remains impacted by tariffs. The challenge for investors would be to balance caution with strategic opportunism, maintaining vigilance for potential rebounds amid the current uncertainty.