President Trump’s wide-ranging tariffs have sent the stock market tumbling and recession fears soaring.
As the dust settles and markets wait for more information on the result of the administration’s 90-day tariff pause, the pressing question for investors is how much of an economic slowdown the recent stock market sell-off has priced in.
Market history suggests that if the economy is indeed headed for recession, stocks might have further to fall.
“I’m not sure the stock market has quite processed the probability of a recession,” Ritholtz Wealth Management chief market strategist Callie Cox told Yahoo Finance.
“Usually when you get a recession, you get a bear market, or you get you get the [S&P 500] falling a lot more than it has.”
Read more: What is a recession, and how does it impact you?
As our chart of the week shows, the S&P 500 (^GSPC) has seen a larger drawdown than the 18.9% peak-to-trough drop in the index this year during each recession since 1973.
In other words, should a recession result from Trump’s tariff plans and the index not make new lows, this year’s drop would be the mildest stock market reaction to an economic downturn in at least 50 years.
“The market correction is well advanced, but probably not complete IF we end up in a recession or the fear of one gets more fully priced,” Morgan Stanley chief investment officer Mike Wilson wrote in a note to clients on April 13.
As economists have dissected the impact of Trump’s tariffs, many have argued recession odds are rising as the new hefty duties are expected to boost inflation and weigh on economic growth.
Goldman Sachs economists most recently placed the odds of a recession in the next 12 months at 45%, well above the historical average of 15% over any 12-month period. JPMorgan has already issued a forecast for a recession later this year. Same with Renaissance Macro’s head of economics Neil Dutta.
Moody’s Analytics chief economist Mark Zandi believes a recession is more likely than not, placing 60% odds on the economy rolling over in the next 12 months. Zandi told Yahoo Finance that if the Trump administration takes an “off ramp” and lowers some threatened tariffs, the economy could skirt recession.
“That doesn’t feel like what’s going to happen, at least not right now,” Zandi said.
Read more: 7 ways to recession-proof your savings
Wall Street strategists have responded to rising recession fears in kind, with many lowering their price targets for the S&P 500 this year.
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