Trump's recklessness has crashed the US stock market — Is there a risk of crisis in the US?

Investors are increasingly worried about Trump's unpredictable trade policy. This policy threatens the stability of global supply chains. The White House's insufficient attention to the risks of economic recession is further exacerbating volatility. What is behind the sharp decline observed in the US stock market in recent days? How much have the president's billionaire allies lost? How will the situation in the stock markets and the US economy develop in general? The publication "Meduza" sought answers to these questions.

On March 10, Monday, the US stock market experienced its worst day since 2022. The market turmoil was triggered by Donald Trump's statement about a potential downturn in the US economy. The American president said the country is going through a "transition period" and did not rule out the possibility of a recession due to the tariff wars he initiated. "I don't like to predict such things (recession). Right now is a transition period because what we are doing is very broad," Trump explained.

This careless remark from the president has also raised concerns among analysts who had previously expected economic growth to accelerate and the stock market to be supported by Trump's policies. Now their positive forecasts are also in question.

Market reaction to Trump's statement

Trump's words triggered a real storm in the US stock market. Investors took his statement as a serious warning about an economic recession. The S&P 500 index, which reflects the state of major companies in America, fell by 2.7 percent. The Dow Jones Industrial Average, which includes the largest companies, dropped by 2.1 percent. The technology sector suffered the most: the Nasdaq Composite index plummeted by 4 percent, marking its worst performance since September 2022.

This decline was also clearly reflected in the financial situation of America's largest entrepreneurs. Tesla's shares fell by 15 percent, marking the largest drop since 2020. This resulted in Elon Musk, the world's richest person, losing nearly 23 billion dollars. Amazon's CEO Jeff Bezos lost 4.3 billion dollars, while Meta founder Mark Zuckerberg's loss reached 9.5 billion dollars. Many other wealthy businessmen also saw their fortunes shrink. According to Bloomberg's calculations, the losses of the richest entrepreneurs who attended Trump's inauguration amounted to 209 billion dollars. The total decline in the capitalization of their companies reached a staggering 1.39 trillion dollars, nearly equivalent to the annual GDP of a country like Russia.

On the day after "Black Monday," Trump attempted to reassure investors, stating that he does not see a risk of recession in the US. This temporarily ensured stability: on March 12, the S&P 500 index began trading with an increase. However, not long after, the president made another statement, announcing plans to double tariffs on steel and aluminum imports from Canada to 50 percent. The market did not take long to react: indices began to decline again. By the end of the day, the S&P 500 index fell by 0.8 percent, the Dow Jones Industrial Average by 1.1 percent, and the Nasdaq Composite by 0.2 percent. Later, Trump backed down from his plan to double the tariffs.

"The market is hanging on the president's every word," emphasizes Yon Trisi, author of the Fuller Treacy Money newsletter. At the same time, George Matheyon, managing director of Key Wealth investment company, noted in an interview with The Wall Street Journal that Trump's subsequent statements are not helping the market, as the main uncertainty is related to future trade policy. According to him, the main problem arises not from the tariffs themselves, but from the extremely unstable situation caused by their "chaotic implementation and cancellation."

What is worrying investors about Trump's policy?

Trump's contradictory statements have further intensified the already growing instability in the financial market. In recent weeks, investors have fallen into uncertainty: the euphoria associated with the Republican's return to power quickly gave way to concerns about his economic policy. The S&P 500 index peaked at 6144 points on February 19, but has since fallen by 9 percent. This ongoing decline has been influenced not only by the president's decisions during this period but also by other factors: for instance, during this time, the release of a new artificial intelligence model by DeepSeek posed a threat to the US's technological dominance. Nevertheless, Trump himself is not currently meeting the expectations of many market participants.

As mentioned above, the main reason for the change in sentiment is the tariff policy. Although Trump's plans to impose tariffs are not a secret, the markets have overlooked the president's statements about trade wars, focusing instead on promises to reduce taxes and ease regulations. However, the reality turned out to be much more complex: the Republican president not only initiated tariff wars but also indicated his readiness to take even tougher measures in his policy.

It should be noted that on March 4, Trump imposed a 25 percent tariff on all goods imported from Canada and Mexico, and doubled the tariff on Chinese products from 10 percent to 20 percent. Canada, Mexico, and China are the largest trading partners of the US, accounting for 40 percent of total foreign trade volume. On March 12, a 25 percent tariff on all aluminum and steel products imported into the US came into effect, which also covered imports from the European Union.

Last week, before the market crash, investor and former advisor to Barack Obama, Steven Rattner, wrote in an article for The New York Times that his Wall Street colleagues had not yet panicked and were generally supporting Trump's policy. However, he emphasized that if there were several consecutive days of decline in the market, sentiment could change sharply.

During the past week, the market declined for two consecutive days, and discussions about the expected benefits of the Republican's policy have now shifted to concerns about the "trumpsession" risk — that is, the economic downturn that could result from the president's decisions.

So, is Trump leading the US economy into recession?

Indeed, the tariff policy has slowed economic growth rates and increased the risk of recession. The tariffs imposed by Trump are raising the costs of imported raw materials and components. As a result, companies are cutting back on investments and raising product prices, which shifts additional costs onto consumers. According to calculations by economists at Yale University's budget laboratory, the imposed tariffs will result in an additional annual cost of 1000–1200 dollars for the average American family.

Another reason for closely monitoring Trump's financial policy is his extensive plan to cut government spending. The US budget deficit is projected to reach 7.2 percent in 2024, but this has not yet created a serious problem for the American economy, even alongside traditionally high government debt. The country is benefiting from investor confidence, and the dollar remains the world's primary reserve currency. Nevertheless, Trump regularly criticizes the risks associated with this model.

Ray Dalio, founder of Bridgewater hedge fund, warned about the seriousness of the situation in an interview with CNBC. He stated that there is a "serious mismatch between supply and demand." The anticipated deficit should be reduced to a lower level than the projected 7.2 percent — approximately 3-4 percent of GDP. For this, the US will need to sell a large amount of government debt securities in its markets. In such a situation, the world may lose confidence in the American dollar, Dalio emphasized. "We will witness shocking events related to solving this problem," he said.

Andrey Movchan, founder of Movchan's Group investment management company, referred to Trump's initiatives to address government debt issues as "fixing the economy." He noted that normalizing public finances will reduce the flow of "hot money" into the stock market, as a significant portion of budget funds was previously directed not to economic development but to speculative circulation. In the short term, this situation may reduce demand and even lead to a temporary recession, but in the long term, restoring budget discipline will strengthen the economy and reduce dependence on constant money printing, he explains.

Major investment banks' economists are revising their forecasts towards a downturn. Goldman Sachs predicts that due to new trade restrictions, the US economic growth rate will be 2.3 percent this year instead of the previously forecasted 2.5 percent. Additionally, the bank's economists raised the likelihood of a recession starting in the next 12 months from 15 percent to 20 percent, warning that this figure could increase further if the White House does not adjust its policy.

However, not all analysts believe that Trump's policy will definitely lead to recession. Nobel laureate Paul Krugman urges caution in making sharp conclusions about the decline of the American economy: "Things are not going well, but I would be wary of excessive predictions of a 'trumpsession,'" he said. Holger Schmiding, chief economist at Berenberg Bank, also stated in an interview with CNBC: "I believe the US economy will not enter recession. The economy, in many ways, is maintaining its stability regardless of Donald Trump."

What awaits the stock market in the future?

Whether President Trump's economic policy leads to recession or not, the stock market is suffering more from uncertainty. Volatility will continue until the situation related to trade policy becomes clearer.

According to Morgan Stanley's chief strategist Michael Wilson, the S&P 500 index could drop to 5500 points in the first half of 2025, which is about a 5 percent decline from current levels. However, by the end of the year, this index may recover to 6500 points (+13 percent). Nevertheless, Wilson believes that instability will persist in the market. He does not rule out that the situation may worsen before it improves, and a sharp decline of up to 20 percent — a complete market crash — is also possible. "We have not yet reached that point, but the situation can change rapidly. Therefore, it is important to consider potential risks," he emphasizes.

According to Goldman Sachs analysts, every 5 percent increase in tariffs related to Trump’s policies towards China, Canada, and Mexico will reduce the earnings of American companies from stocks by 1-2 percent.

Citi economists recommend that investors determine the profits from American securities and consider shifting capital to Chinese companies. They believe that a 10 percent "pullback" from the market's peak value is a sufficient reason to exit US companies. The American stock market has entered a "bubble zone," and the current main task for investors is not to increase risks but to preserve existing profits, according to Citi economists.

According to Reuters, Goldman Sachs statistics show that the main source of risk at present lies not only in the tariffs themselves but also in their unstable and unpredictable implementation. Any additional 5 percent tariff reduces the profits of S&P 500 companies by an average of 1.5-2 percent.