In 2024, President Donald Trump issued a stark warning to voters, claiming that choosing Vice President Kamala Harris would result in a devastating economic downturn. At a rally in Pennsylvania, he expressed his fears about a potential market collapse, stating, “If we were to lose this election, I believe the market would nosedive.” Just weeks prior, he ominously predicted a catastrophic economic scenario reminiscent of the 1929 Great Depression if he lost.

Market Trends Under Trump’s Administration

Despite winning the election, Trump’s predictions about an economic fallout are proving to be prescient. His administration’s policies, particularly tariffs, are transforming a previously thriving stock market into a bear market at a historic pace. Should the market see a decline of 20% from its peak, it would mark the earliest transition from a bull to a bear market in the history of the S&P 500, which has data dating back to 1957.

• As of a recent Sunday night, the S&P 500 had already dropped 15% in value since his Inauguration Day.
• The last time a president experienced a similar decline so early in their term was George W. Bush in 2001.

This unprecedented downturn is primarily attributed to Trump’s controversial “Liberation Day” announcement, which shocked investors and promised to escalate tariffs. Since this event, a staggering two-thirds of the 15% decline in the S&P 500 has occurred.

Historical Context of Market Declines

Notably, the current economic situation differs significantly from that faced by past presidents. When Bush took office, the market was already in decline due to the bursting of the dot-com bubble, which had caused a 10% drop by 2000. Conversely, Trump inherited a booming market, with the S&P 500 seeing a 23% increase in 2024 prior to his inauguration.

While the current 15% decline does not yet classify as a bear market, as that requires a 20% decrease, the Nasdaq has already crossed this threshold, marking its first bear market since 2022.

Implications for the Broader Economy

The question remains: does the stock market accurately reflect the state of the overall economy? Many analysts argue that it does. With more than 60% of Americans now engaged in the stock market, the fortunes of Wall Street are increasingly intertwined with those of Main Street.

According to Ed Yardeni of Yardeni Research, “Wall Street is Main Street. The two streets prosper and suffer together.” This interconnectedness becomes even more critical in light of the tariffs imposed by the Trump administration, which could lead to significant supply shocks and inflationary pressures.

Rising Recession Fears

Experts are sounding alarm bells regarding the potential for a recession. JPMorgan has increased the likelihood of an economic downturn to 60%, while Goldman Sachs has raised its estimates from 20% to 45%. HSBC echoes these concerns, placing recession odds at 40%.

Economic indicators suggest that we may be on the brink of two consecutive quarters of negative growth, a situation not seen since 1953. If this occurs, it would mark a troubling precedent for a newly elected president, particularly in the absence of any external conflict like a war.

The rising fear of recession could potentially trigger a vicious cycle. If market confidence continues to wane, leading to further stock declines, it may prompt consumers to cut back on spending, exacerbating the economic situation. The significant losses in Americans’ 401(k) accounts could lead to a broader reluctance to invest, creating a challenging environment for the economy at large.

In summary, as the economic landscape shifts dramatically under Trump’s policies, the consequences of these changes will likely resonate beyond Wall Street, impacting everyday Americans and their financial futures.