Stocks Tumble as U.S. Economy Shrinks for First Time Since 2022

 

Stocks Tumble as U.S. Economy Shrinks for First Time Since 2022

April Market Turmoil Ends With Economic Contraction

 

With a major data release at the end of April, which was one of the most tumultuous months Wall Street has experienced recently, the U.S. economy shrank in the first quarter for the first time since 2022.

The markets had a robust reaction on Wednesday morning. The S&P 500 dropped 1.5%, the Nasdaq Composite, which is dominated by tech stocks, fell 2%, and the Dow Jones Industrial Average declined 500 points (1.25%).

Overall, the month was challenging, and the losses ended the Dow's six-day gaining streak—its greatest since July. The S&P 500 as a whole has recovered from a sharp drop brought on by new trade plans, but the Dow is expected to end April down more than 3.5%.

 

Early April Sell-Off Tied to Trump’s Tariffs

After former President Donald Trump announced fresh "reciprocal" tariffs on April 2, the S&P 500 had already dropped more than 11% in the first eight days of April. Even while equities recovered considerably due to bond market volatility and a brief 90-day tariff truce, the S&P 500 is still expected to end the month around 2% lower.

"This is Biden's Stock Market, not Trump's," Trump said on social media in response to Wednesday's market decline, claiming that President Biden's actions, not his own tariff policy, were to blame for the state of the economy.

"Companies are beginning to move into the USA in record numbers, and tariffs will soon start kicking in," Trump continued. We must remove the Biden Overhang before the boom can begin. It has nothing.

 

Economic Data Adds to Investor Anxiety

The Commerce Department just showed data showing that the U.S. GDP declined in the first quarter of this year. This sudden decline has increased concerns that a recession may be on the way for the nation.

some analysts, businesses, and consumers are suffering considerably as a result of the challenges regarding Trump's new trade plans.

Kelly Bouchillon, senior partner at Sound View Wealth Advisors, stated that unless all tariffs are removed, a speedy recovery is unlikely. "It is evident that trade policy uncertainty is linked to this volatility."

 

Comparing Presidential Market Performances

Markets have always reacted differently to each administration. The stock market had the third-worst 100-day performance among any president in American history during Trump's second term, after Gerald Ford and Richard Nixon.

Under President Joe Biden, the S&P 500 boosted 8.5% in the same timeframe and recorded two years in a row with gains of 20% or more, something not seen since the 1990s. In contrast, the market jumped 5% in the first 100 days of Trump's first term.

 

Investors Weigh the Possibility of Recession

Investors are left attempting to ascertain if the United States can avert a recession, or whether more economic suffering is ahead, after a month of significant fluctuations. Although the S&P 500 has recovered somewhat, there are still concerns regarding the long-term effects of Trump's tough trade policy.

"What happens over the next 100 days will depend in part on whether markets and corporate America can continue to act as guardrails against Trump's policies, as they have since April 2," said John Higgins, chief markets economist at Capital Economics.

 

Volatility Grips Bonds and the Dollar

The U.S. currency and Treasury yields also saw extreme swings in April. Investors usually shift to safe-haven assets like government bonds and the dollar when stock markets collapse. However, that pattern was broken this time.

"The markets were taken aback by the tariffs' significantly higher-than-anticipated rate," stated Charlie Ripley, senior investment strategist at Allianz Investment Management. "Sharp volatility resulted from that shock."

The treasury markets have been volatile. After plunging below 4%, the 10-year yield jumped above 4.5% and then fell below 4.2% once more. This up-and-down journey demonstrated the extent of the pressure the administration's trade policy is putting on investors, as bond rates move in the opposite direction of prices.
“They have bold goals on trade,” Ripley added. “But the market’s reaction has clearly shown there are limits to how far they can push.”