The American stock market has seen unprecedented volatility in recent years, with doubts raised on the possibility of an immediate recession. Here is an analysis on the extent of the failure in the market and the reasons for such economic apprehensions.
How much has the U.S. stock market fallen recently?
The U.S. stock market experienced a steep sell-off in March 2025, primarily due to recession fears stoked by President Donald Trump’s tariff policies and federal layoffs directed by the Department of Government Efficiency. The S&P 500 index has dropped to 5.7% in this month alone, and the Dow Jones Industrial Average and Nasdaq Composite also suffered a severe blow.
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What are the main factors causing the stock market decline?
Those were some important contributing factors to the recent downturn:
- Tariffs: The strident and unpredictable tariffs of President Trump have sparked fears that these tariffs could cause permanent damage, both inside and outside the country.
- Federal Layoffs: The administration’s cuts in federal workforce numbers by more than 9,500 employees raised eyebrows for possible disruption of essential services. This has raised questions regarding employees’ rights.
- Surge in trade deficit: The unprecedented surge in the U.S. trade deficit was extended to include the new record level of $131.4 billion deficit in January due to a sharp increase in gold imports as businesses rushed in to import commodities before new tariffs were in effect.
Is a recession imminent in the U.S.?
The possibility of a recession is a topic of active debate among economists and policymakers. President Trump has not ruled out a recession, stating that the U.S. economy is in a “period of transition” as it seeks to reclaim its wealth.
Goldman Sachs has increased its recession probability to 20%, citing risks arising from changes in policy.
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How are businesses responding to recession concerns?
Despite the market volatility and recession fears, mentions of “recession” in S&P 500 companies’ earnings calls are at their lowest since early 2018. This suggests that many businesses remain cautiously optimistic about their prospects.
What should investors consider during this period?
In light of the present economic scenario, investors might consider:
- Diversify portfolios: Spreading investments across various asset classes may mitigate risks of market volatility.
- Stay informed: Knowledge of policy changes, specifically tariffs and trade relationships, is valuable because they have the ability to greatly impact markets.
- Emphasize long-term goals: While short-term movement of the market is unsettling, maintaining a long-term investment strategy may weather periods of doubt.
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