Financial markets are once again on edge as signs of a global economic slowdown re-emerge. Recent U.S. economic data, coupled with escalating trade tensions, have dampened consumer confidence and business activity.
While a recession is not the prevailing forecast for economists due to the fundamental strength of the U.S., investor anxiety remains high, exacerbated by President Donald Trump’s new 25% tariffs on imports from Mexico and Canada.
U.S. consumer confidence witnessed its sharpest decline in over three years in January, while retail sales dropped dramatically, impacting new manufacturing orders and employment figures.
Highlighting the stark change, the Atlanta Fed’s GDPNow model’s forecast for annualized growth this quarter plunged from +2.3% to -2.8% within a week. Analysts attribute some negative data to temporary factors like adverse weather and import dynamics.
Nonetheless, the ongoing trade wars have shifted focus towards growth risks posed by U.S. tariffs, casting concerns over inflation into the background.
Morgan Stanley warns these tariffs could significantly impact U.S. growth, with Canada facing a growth decline and Mexico at risk of recession.
Analysts indicate that the trade conflict pressures central banks worldwide to consider further rate cuts as traders anticipate U.S. cuts of up to 75 basis points by year-end.
Even with potential recovery in U.S. data, the uncertain outlook advises caution toward equities.
Hedge funds have pulled back from bullish positions, utilizing strategies expecting declining stocks, according to a Goldman Sachs report.
Consumer discretionary stocks have notably underperformed, highlighting diminished shopper power amid growth fears. Meanwhile, the U.S. labor market’s health remains a pivotal concern for sustaining the current economic cycle.
