Navigating Recent Market Uncertainty & Recession Fears

by | Mar 10, 2025 | Insights

Recent market declines in major indices have left investors searching for direction amid mixed economic signals.1 With rising inflation, decreased consumer confidence, government sector job losses, and heightened policy uncertainty, many are questioning the economy’s potential trajectory. President Trump’s recent comments acknowledging recession possibilities have only intensified these concerns.

What should investors consider when evaluating the current market environment?

Economic policy uncertainty reaches elevated levels

It’s crucial to differentiate between personal economic experiences and market dynamics. While inflation may strain household budgets, certain investments might actually benefit from rising prices. Maintaining objectivity between personal economic impacts and investment fundamentals is key to sound decision-making.

Markets and economic conditions share a complex relationship. Strong economic growth typically supports corporate earnings and stock prices, while markets often serve as predictive indicators by reflecting collective investor sentiment. However, market predictions aren’t infallible.

Consider that recession predictions have persisted for nearly three years, with many experts incorrectly forecasting an imminent downturn last year due to inflation concerns. Traditional recession indicators like the inverted yield curve and Sahm Rule haven’t proven reliable in the current cycle either.

Despite ongoing concerns, markets have demonstrated remarkable resilience. The S&P 500 has surged over 60% from its late 2022 lows,2 while the Nasdaq has advanced 78%.3

While a recession will eventually occur, timing such events remains notoriously difficult. Building portfolios aligned with long-term objectives, rather than short-term economic predictions, typically yields better results.

How tariff concerns impact markets

Recent tariff announcements have caused concern amongst investors. However, we’ve seen similar worries about trade wars before (like in 2017 and 2018), and markets recovered over time.

Tariffs are basically taxes on goods brought in from other countries. With prices already higher than normal (this is called inflation), these taxes could make things cost even more. The chart shows that the U.S. buys more goods from other countries than it sells to them, which is called a trade deficit.

Remember that the U.S. has used tariffs many times before in its history. Sometimes they’re used to protect U.S. companies or important industries like technology. During President Trump’s first term, similar tariffs led to new trade agreements with Mexico and China.

Often, the stock market’s first reaction to tariff news is worse than the actual impact on the economy. Even during the trade tensions of 2017-2019, investments generally did well over time.

Economic growth has remained resilient despite ongoing concerns

Current recession fears stem from various factors, including inflation exceeding 3.0% and recent government sector job losses. February saw 10,000 federal positions eliminated, with more reductions expected. While federal employment represents a small portion of total jobs, there are concerns about broader economic impacts.

Consumer sentiment has also weakened, with five-year inflation expectations reaching 3.5% – the highest since 1995. However, the administration’s pro-growth initiatives around manufacturing, energy, taxes, and regulation could potentially boost business investment as the year(s) go on. Congress is currently considering extending the Tax Cuts and Jobs Act as well, which could provide a boost both to consumers and the corporate sector.

Market pullbacks occur regularly within long-term upward trends

While recent market volatility and decreases certainly feel uncomfortable, drops like this are normal and historically happen several times each year. We saw similar drops twice in 2024 and three times in 2023, yet in both cases, the stock market ended with exceptionally positive returns over 20%. Short-term volatility is an inherent part of investing, even as markets tend to rise over longer periods.

There’s still good news in the economy as well: companies are making money, most people who want jobs have them (96% are employed), and workers’ pay is going up. The bond market, which is another way to invest money, is actually showing less worry than the stock market right now.

While some types of investments are down, others are doing well. This is why it’s prudent to own different types of investments that compliment one another (i.e., when some go down, others might go up). For example, bonds have been helping protect investors’ money during this stock recent market decline.

The bottom line? While recession concerns have resurfaced amid mixed economic data and policy uncertainty, maintaining a long-term perspective remains crucial. History demonstrates that staying invested through challenging periods typically leads to better investment outcomes as opposed to trying to time markets.

1Standard & Poor’s and Nasdaq have declined 1.9% and 5.8%, respectively, as of March 7, 2025

2S&P 500 price return from September 20, 2022 to March 7, 2025

3Nasdaq Composite price return from December 22, 2022 to March 7, 2025

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About The Author

Kevan Melchiorre, CFP®Co-Founder & Managing Partner

Kevan Melchiorre co-founded Tenet Wealth Partners in 2021 with a focus on delivering a premier client experience, supported by an innovative and fully integrated approach to wealth planning. As a CERTIFIED FINANCIAL PLANNER® practitioner with over 16 years of wealth management experience, Kevan partners with affluent individuals, families, and institutions to help align their capital […]

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