Wall Street is on edge again, but the culprit this time isn’t inflation. Instead, equities investors large and small are gripped by fear of slowing economic growth in the U.S.
A rupture in the stock market has been exposed, with things taking a dark and volatile turn in just the past two weeks. The S&P 500 Index has wiped out all of its gains since Donald Trump was elected president on the strength of what Wall Street considered his “pro-growth” agenda. Meanwhile, the technology-heavy Nasdaq 100 Index briefly slumped into a correction Friday after plunging more than 10% in 17 days as investors dump the winners that paced the soaring stock market over the past two years.
With inflation remaining sticky, unemployment rising amid the Trump administration’s efforts to slash the federal payroll, and growth slowing from its previous breakneck pace, economists and sell-slide strategists are warning about the rising odds of what traders fear most: stagflation.
“The stock market is very confused about Trump’s tariff plans,” said Jeremy Siegel, a finance professor at University of Pennsylvania famous for, among other things, calling technology shares “a sucker bet” in March 2000 as the dot-com bubble was peaking. “Is all of this just a negotiating tactic? We don’t know yet. I see an even bigger correction coming after over-exuberance.”
Investors are at a crossroads, unsure which way to go. It’s most acute when it comes to Trump’s tariffs and the risk of a trade war, which has sent stocks on some wild swings. The S&P 500 just posted a move of more than 1% in either direction for six straight sessions, something it hasn’t done since November 2020, when Trump was in the midst of disputing the outcome of the election.
To make things more onerous, the mega-tech stocks that have served as havens for so long, rising in the face of seemingly every challenge, are now leading the selloff. Nvidia Corp. has erased almost $1 trillion in market value in two months, briefly sliding below that level on Friday before dip buyers stepped in to inch it back above. And a Bloomberg Index of the Magnificent Seven tech stocks — Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms Inc., Microsoft Corp., Nvidia and Tesla Inc. — has dropped more than 12% in just three weeks.
“This is an incredibly difficult market,” said Thomas Thornton, founder of Hedge Fund Telemetry, who is holding his highest level of cash. “People are still way too eager to buy. Good bottoms are when people can’t get out fast enough and nobody wants to buy.”
From rookie retail traders to hedge fund pros, no one knows what the eventual cost of Trump’s sweeping policies really are. His pro-growth plans were tax cuts, deregulation and energy dominance. Tariffs were supposed to bring manufacturing back to the U.S. and create jobs. But so far there’s little evidence of that. Just this week, Trump warned that Americans may feel a “little disturbance” from the trade wars with Canada, Mexico and China. He offered no word on when they’ll see the benefits from his tariff fights.
All of this has mom-and-pop investors spooked. For the first time since 2022, the majority of individual investors say they believe stock prices will drop over the next six months, according to a survey by the American Association of Individual Investors. Fewer than 20% say they expect prices to rise over that period.
“Be prepared for more ‘Trump pumps’ and ‘Trump dumps,’” said Dennis Dick, head of markets structure and a proprietary trader at Triple D Trading, who’s trading off rumors and headlines fighting trend-following algorithms. “The president never stops talking. It feels like my head is on a swivel.”
The turbulent start to 2025 has Wall Street forecasters rethinking their bullish predictions for stocks at the start of the year. The average target predicted by a survey of two dozen strategists forecast that the S&P 500 would end 2025 at 6,511.36, based on data compiled by Bloomberg. That implies a roughly 13% rise from Friday’s close for a benchmark that’s already down about 2% for the year.
“We knew that the optimistic interpretation of the initial year of the Trump administration was way off,” said Barry Bannister, chief equity strategist at Stifel, Nicolaus & Co., who was one of few strategists to predict a decline in stocks this year. “He is a disruptor and has to break down the old order if he’s going to remold some sort of new order, so we knew there would be a period of tumult.”
The focus from here is on Corporate America’s profit growth, which is needed to justify the rich equity valuations. But analysts’ outlooks for the S&P 500 in 2025 have been steadily falling since the start of the year, from expectations of a nearly 13% rise in early January to roughly 10% now, according to Bloomberg Intelligence.
With U.S. Federal Reserve officials in a blackout period before a March 19 interest-rate decision, traders will parse each economic data point in the coming weeks for clues about what could drive the stock market’s next move. A survey on job openings is due Tuesday, followed by an inflation report on consumer prices on Wednesday, then a sentiment reading from the University of Michigan Friday. Each should provide clues about how many times the Fed will cut rates in 2025.
Fed Chair Jerome Powell offered reassurance that the economy remains “in a good place” in a speech on Friday, but disappointing readouts raise speculation that it’s beginning to slow more than expected and push investors to flee riskier assets. Steel and aluminum tariffs are scheduled to hit on Wednesday, adding another volatile element to the equation. And Congress must approve a spending agreement before Friday or face a government shutdown.
“Risks are rising, and we’re starting to question the potential rockiness in the economy,” said Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets. “We’re at a tricky spot. And the next few weeks are pivotal.”
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