A Stock Market Alarm Is Sounding for the Third Time in 20 Years. History Says This Will Happen Next.
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the S & P 500(Snpindex: ^Gspc) She briefly fell into a correction area in March. Since then, the index has bounced up to a small degree, but it is still more than 8 % less than the record in February. However, the economic warning bell that was seen in just two periods in the past twenty years may indicate more trouble on the horizon.
As of March 18, the data of the Federal Reserve in Atlanta shows that the gross domestic product in the United States is going at a rapid pace to reduce 1.8 % annually in the first quarter of 2025. This will be the worst economic shrinkage since the second quarter of 2020. Historically, S&P 500 has performed badly during periods of economic contraction.
Below are important details.
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gross domestic product (GDP) measures the size of the economy. It is calculated as a total of four numbers: consumer spending, commercial spending, government spending, and clear exports. In the United States, the semester GDP has decreased in just two periods in the past twenty years, as shown below:
2008-2009: GDP decreased by 2.5 % in the fourth quarter in 2008 and remained negative during the third quarter of 2009 with the collapse of the housing market and borrowers retreated on the mortgages without mortgage. These events led to Great recession.
2020: GDP decreased by 7.5 % in the second quarter of 2020 and remained negative during the second quarter of 2020, as Covid-19 was forced to close forced and far-social works that disrupted supply chains around the world. These events led to a brief stagnation.
The above events are linked to the sharp declines in the S&P 500, which are usually the best scale for the stock market in the United States. Specifically, the S&P 500 index decreased by 56 % of its height during the large recession period, and the measurement index decreased by 33 % during the first days of the Covid-19s.
As we mentioned, the FBI data in Atlanta GDP appears on the right path to decrease at an annual rate of 1.8 % in the first quarter of 2025, but this number has not been completed yet. The first quarter does not end until March 31, and the Economic Analysis Office will not publish a final number until April 30.
Consumer spending, which represents two -thirds of GDP, increased by 4.2 % in the fourth quarter, but growth goes on the right path to 0.4 % in the first quarter amid concerns about inflation and definitions. Consumer spending in January decreased unexpectedly, a decrease in the first month in two years. The feelings of the consumer in February reached its lowest level since November 2022.
In addition, while the Trump administration’s trade policy aims to correct the old trade deficit-US imports have been constantly exceeded since 1975-definitions have so far had an opposite impact. The trade deficit in January reached a record as companies stored inventory. This means that American imports exceeded exports, according to the largest margin in history. This is the main reason for the gross domestic product to decrease in the first quarter.
However, the S& P 500 tariffs can be sent in the coming months, even if the American economy avoids shrinking the first quarter. Goldman Sachs The strategists recently wrote, “The customs tariff for cars, critical imports, and mutual definitions can raise the actual rate to about 10 %, which is the five times the increase in the first Trump administration.”
The definitions imposed during the Trump administration contributed to a 19.8 % decrease in the S&P 500 index during a three -month period in late 2018. If the second Trump administration exceeds a more aggressive trade policy, the impact on the stock market may be greater.
Below: Commercial tensions and economic uncertainty make the current market environment fraught with risks, so investors must move forward with caution. This does not mean avoiding shares completely, but it means limiting purchases of high condemnation ideas and buying arrows that trade with reasonable evaluations.
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