S&P 500 Faces Growth Scare

S&P 500 Digests Trump Focus

In our post “S&P 500 And Trump’s First 100 Days,” we suggested that the market might struggle due to the sequence of the Trump administration’s fiscal, regulatory, and trade policy implementation.

As predicted, the tariff, border, and regulatory policies implemented so far have been net negative for growth and/or net positive for inflation. That’s stagflationary.

The impact of the Trump administration’s policies is already evident in the economy. Business investment contracted in the fourth quarter of 2024. Consumer confidence has dipped significantly. The global services PMI recently dipped below 50, and the New York Fed services sector activity index was below zero.

Macro Data Is Mixed

The key macro cycles remain mixed compared to the start of the S&P 500 bull run in 2023.

Growth is worse, inflation is better, liquidity is similar, earnings are worse and fiscal policy is worse.

While the probability of the U.S. economy entering a recession is low, the likelihood of a technical recession, similar to 2022, can’t be ruled out.

As highlighted in our previous post, the economy is slowing, and the historically elevated policy uncertainty brought by the Trump administration is a contributing factor.

That uncertainty has impacted current Wall Street economist consensus expectations and threatens the risk-on condition of the market regime.

While tax cuts, deregulation, and expenditure reductions will have a positive impact on the economy in terms of growth and inflation, our view remains that risk assets may correct to the downside in the time it takes to legislate those policy goals.

S&P 500 Correction On The Horizon

So, are we on the verge of a severe correction?

Possibly.

That will depend on whether Trump delays tariff implementation, etc., in response to the market reaction.

If that is the case, our expectation, based on the likely trend acceleration in U.S. liquidity over the next one to two quarters and the modest uptrend in global liquidity, is that the S&P 500 will bottom and grind higher.

If he doesn’t delay tariff implementation, etc., then the S&P 500 will trend lower.

The S&P 500 has trended sideways since the November election outcome. However, as we predicted, there has been a significant degree of higher-than-normal daily and weekly volatility. That was always likely, given the stated policy and nature of the Trump administration.

Markets don’t like uncertainty. Trump revels in chaos and uncertainty.

Time to Buckle Up.