Is the stock market worried about a US recession?

What is going on with the US stock markets? The S&P500 has declined almost 10% from its most recent peak. Volatility has increased dramatically. Most market participants are tying this to President Trump's tariff policies and the uncertainty it causes. Fed Chair Powell had to come forward and downplay the potential weakness of the US economy. However, something more fundamental may be driving down the stock market: the US economy was forecasted to grow by 1.6% in the first quarter, but now there is a possibility that the US economy might shrink instead.

Consumer data disappoints

The US GDP is made up of approximately 70% of consumption. Consumer spending declined unexpectedly by 0.2% in January after a 0.8% increase in December. This decline could be attributed to the seasonal adjustment factor, which plays a significant role in both the December and January numbers because December is typically the strongest retail sales month, while January is one of the weakest. Adding to this, the Consumer Confidence Index saw the largest decline since August 2021 in February, indicating that this trend of weak consumption may persist. It could be that the engine of the US economy is losing steam. Other indicators are also pointing towards a downturn.

Real-time indicator turned negative

The Atlanta Fed GDPNow is a real-time economic forecasting model that provides an estimate of the current quarter's GDP growth. It uses a dynamic factor model to incorporate incoming economic data and update its GDP forecast frequently. Simplified, the model adds actual economic data as it becomes available and estimates those not yet published. This model is predicting the US economy will shrink in the first quarter. If more such fundamental indicators are published with negative readings in the next weeks, then the likelihood of a global slowdown will increase. Fundamental indicators depict the shape of the economy in general. This development need not end in a recession in the US, but it comes as a warning and warrants a closer look. 

It seems the discussion about “American Exceptionalism” has come to an end for now; opportunities may arise in Europe and the rest of the world. We have become more cautious regarding global equities. The potential dip in US economic growth and the reassessment of Europe due to possible fiscal stimuli could lead to an adjustment in our assessment. We are closely monitoring the situation and will adapt our asset allocation accordingly.

This information provides a market overview, and the investment strategy of Kathrein based on our market opinion. It does not contain any direct or indirect recommendation for the purchase or sale of securities or an investment strategy.

Both currencies and securities may experience price fluctuations due to market changes at any time. Past performance data and representations do not allow for reliable conclusions about future results.