- Trump’s economic policies have sparked recession fears and a drop in the stock market.
- The S&P 500’s recent correction reflects investor concerns over Trump’s policies.
- With the 2026 midterms not far off, Trump risks political damage by ignoring the worsening mood.
President Donald Trump might be making a mistake that cost Democrats the election last year.
Similar to how President Joe Biden’s insistence that the economy was strong glossed over the pain of high inflation for many Americans, the Trump administration may now be ignoring darkening economic vibes.
While inflation became a sticking point for voters, the Biden administration was criticized for rarely acknowledging it. Whether Biden and the Democrats were responsible for the bulk of the inflation during his term, voters saw a disconnect between the messaging of a strong economy and dwindling affordability for everyday items.
In its first few months, the Trump administration has been plagued by a declining stock market, a plunge in sentiment among consumers, businesses, and investors, and growing concerns about a recession — and yet, there’s been little acknowledgment or outright dismissal of some of the pain stemming from the uncertainty created by Trump’s policies.
“Clearly sentiment is on its back heels,” Mark Zandi, chief economist at Moody’s, told Business Insider. “You can see that in business surveys, in consumer surveys, and, of course, the stock market.”
The S&P 500 entered a correction last week, falling 10% from its February 19 peak. It’s the first correction for the stock market since October 2023.
The administration has tried to downplay the situation. Treasury Secretary Scott Bessent has said corrections are “healthy” and that the administration will stomach market volatility while it pursues its goals.
Meanwhile, Trump has continued to insist tariffs are an economic windfall even as markets and consumers fret over their impact.
But a declining stock market could serve as an overhang for the economy if it doesn’t rebound soon — and it highlights a big difference between the downbeat mood during the Biden administration versus the early days of Trump’s term.
“With Biden, the inflation problem was already in the rearview mirror,” Zandi said. “There’s nothing they could do about the higher prices, they were there and they undermined sentiment, but it wasn’t like that was undermining the economy.”
This time around, the administration risks a “vibecession” turning into an actual recession.
Zandi added that the stock market’s performance can have a material impact on the broader economy, which is why Trump and Bessent should probably not dismiss the sell-off.
“The economy is very dependent on consumers continuing to spend, particularly the well-to-do, and the well-to-do are focused like a laser beam on their stock portfolios, and if the stock market shows a lot of red, they don’t feel good and at some point they’re going to pull back on their spending and that could be the fodder for a broad economic downturn,” Zandi explained.
Wall Street takes notice
This week, RBC strategist Lori Calvasina lowered her year-end S&P 500 price target to 6,200 from 6,600, citing “more evidence that vibes have been weakening.”
In a note on Monday, Calvasina said sentiment has weakened among investors, consumers, small businesses, and large businesses, suggesting that there is no clear buying opportunity for stocks yet.
“It’s a tricky moment in the US equity market,” Calvasina said.
“The vibes have helped us understand why the stock market has been getting hit so hard, and why concerns about the direction of the economy are rising. But the vibes aren’t sending us a clear signal about whether, even with the S&P 500 down 10% from all time highs, a contrarian buying opportunity is at hand.”
Ed Yardeni also lowered his “best-case” year-end price target for the S&P 500 to 6,400 from 7,000, arguing that the heightened economic uncertainty is a good reason for stock valuations to decline.
Strategists at Goldman Sachs also lowered their price target, to 6,200 from 6,500, due to the increased political uncertainty surrounding tariffs and its impact on broader economic growth. Goldman also recently upped its recession probability to 20% fro 15%.
Meanwhile, data is mounting that consumers and businesses are under pressure. More households report not having enough set aside to cover a $2,000 emergency, while while a growing number of public companies have said policy uncertainty is clouding their view in 2025.
The next big catalyst for investors to watch is April 2, which is when Trump has threatened to implement reciprocal tariffs.
“It’s going to do damage,” Zandi said of the tariff threats. “Whether that pushes us into a recession does depend on the collective psyche, how fragile is it really and how do the people and the market react,” he added.
If Trump’s proposed tariffs are enacted, America’s tariff rate would surge to levels not seen since the 1930s.
“If you see a large number of trading partners responding in kind, then that’s the fodder for a recession,” Zandi said, who added that Trump’s first trade war in 2018 damaged the economy, especially the manufacturing sector.
Still time to pivot
But if a deal to avoid a trade war materializes, Trump would have an out that would help clear up some of the uncertainty that has plagued markets.
“If push comes to shove, he’ll pivot, and you got to give him credit, he’s quite good at that, changing course and declaring victory and moving on,” Zandi said. “I think that’s the base case but I say that with less confidence with each passing day.”
The real risk for Trump is being rejected at the polls, as the Democrats did last year after the economic mood soured.
Yardeni predicted Trump will relent to avoid a recession, as a downturn would likely cost Republicans their majorities in both the House and the Senate in the 2026 mid-term elections.
“I think it is dangerous to ignore those darkening vibes, both from a broader economic perspective and politically,” Zandi said.
