Ignoring the decline of the US stock market! Trump denies recession and downplays market turmoil

According to the Zhitong Finance APP, U.S. President Trump downplayed the significant market sell-off triggered by concerns that his tariff agenda would drag the economy into recession, stating that he expects the U.S. will not fall into recession. Trump said on Tuesday at the White House, "I don't see it at all. I think this country is going to prosper. The market will go up and down. But you know what? We have to rebuild our country."

Trump made these remarks as the market experienced three weeks of volatility. He had originally planned to raise tariffs on Canadian steel and aluminum products to 50% on Wednesday, but this decision underwent a dramatic reversal in less than six hours. White House Chief Trade Advisor Navarro stated in a media interview on Tuesday afternoon that Trump no longer plans to implement this tariff adjustment.

Before the significant drop in recent weeks, the president and government officials warned that as they used tariffs to rebalance trade flows and significantly cut federal government spending and labor, the U.S. economy could face difficulties. Trump refused to rule out the possibility of an economic recession during an interview on Sunday.

For a long time, Trump has viewed the market as proof of his economic policies, but in recent weeks, he has downplayed this indicator and reiterated this stance on Tuesday. When asked about market volatility, Trump said, "No, I'm not worried. I think some people are going to make a big deal by buying stocks, bonds, and everything else they're buying. I think we're going to have a real economy, not a fake economy."

Additionally, the federal government efficiency measures led by Elon Musk have caused unease in Washington, with markets concerned that these measures will lead to a significant decline in the U.S. job market. However, Trump and his allies argue that this initiative will bring growth to the private sector.

Market Pricing in Recession

Earlier on Tuesday, the stock market fell after Trump issued new tariff threats against Canada, the U.S.'s largest trading partner. This move caused the S&P 500 index to drop 10% from its February peak, although buyers stepped in to narrow the decline, even though the index still closed lower on Tuesday.

After Trump refused to rule out the possibility of the U.S. economy entering recession this year, the market capitalization of U.S. stocks evaporated by more than $1.8 trillion. A report from Goldman Sachs pointed out that recession fears topped the "avalanche" list for U.S. stocks. Data from Goldman Sachs' equity sales trading department showed that hedge fund sell-offs intensified, shorting at the fastest pace since November 2024, with long-term investors net selling $5 billion, primarily concentrated in technology, finance, and consumer discretionary sectors. Weak economic data, including non-farm payroll data and the ISM manufacturing index, exacerbated market concerns about an economic recession. Goldman Sachs economists raised the probability of a 12-month economic recession from 15% to 20%.

J.P. Morgan economists also raised the risk of a U.S. economic recession this year from 30% at the beginning of 2025 to 40%. Analysts wrote, "Due to extreme policies in the U.S., we believe the risk of a recession this year is significant." Previously, it was reported that Morgan Stanley economists downgraded U.S. economic growth expectations last week and raised inflation expectations. The firm predicts that the U.S. GDP growth rate will be only 1.5% in 2025 and will drop to 1.2% in 2026 At the same time, against the backdrop of Trump's chaotic tariffs and federal government layoffs potentially further suppressing economic growth, bond traders believe the risk of the U.S. economy falling into stagnation is increasing.

Less than two months into Trump's presidency, speculation that he would inject stimulus measures to expand the U.S. economy and continue to push up U.S. Treasury yields was quickly cast aside by the market. Instead, traders flocked to short-term U.S. Treasuries, causing the two-year U.S. Treasury yield to drop significantly since mid-February, as the market anticipated that the Federal Reserve would cut interest rates again as early as May to prevent further economic deterioration.

Former U.S. Treasury Secretary Summers stated that due to a series of policy measures taken by the Trump administration that are undermining confidence, the likelihood of the U.S. economy falling into recession this year is nearly 50%. "We are facing a real uncertainty problem that is hard to resolve," Summers said in an interview. "It is almost certain that economic growth will be below expectations, and the likelihood of falling into recession is close to 50%." Summers pointed out that significant immigration restrictions, federal government layoffs, and President Trump's tariff policies have collectively led to a dramatic change in the outlook for the U.S. economy.

Gennadiy Goldberg, head of U.S. interest rate strategy at TD Securities, commented on the risk of recession: "Just a few weeks ago, we were being asked whether the U.S. economy was re-accelerating — and now, suddenly, the word 'recession' is being mentioned repeatedly. The market has shifted from euphoria about growth to despair."

Options linked to short-term Federal Reserve rates — the Secured Overnight Financing Rate (SOFR) — suggest an increasing likelihood of multiple rate cuts by the Federal Reserve in the coming months. By the close on Monday, the market had priced in expectations that the Federal Reserve would cut rates by about 80 basis points by the end of the year. Last week, the expected rate cut was only 60 basis points, but the market still anticipates that the first rate cut of the year will not come until June. Nevertheless, this is not enough to indicate that the Federal Reserve will enter a mode of combating recession. Federal Reserve Chairman Powell stated last Friday that he is not in a hurry to restore accommodative policies, noting that despite the "increased level of uncertainty, the economy is still in good shape."