Buckle up, the ride is just getting started…

Fears have been growing that the U.S. economy is headed for one of two possible outcomes: stagflation or recession. The Alanta Fed recently forecasted that an economic contraction would take place in the first quarter of 2025 with an annualized GDP decline of 2.8%. President Trump attempted to downplay these fears over the weekend stating “I hate to predict things like that. There is a period of transition because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing, it takes a little time, but it should be great for us.” Most analysts took his comments to indicate an indifference on the Administration’s part as to whether the economy was to shrink while the president is enacting his desired changes to government.

To date, the Trump Administration has implemented the following tariffs: 20% on all imports from China, up to 25%+ tariffs on Mexican imports and most Canadian imports although there is a one-month exemption for the automotive industry. Lastly, a 25% tariff on all aluminum and steel imports was just enacted. And even this data is stale as this Tuesday morning, the Administration increased steel and aluminum tariffs on Canada to 50% in partial retaliation for Canada’s response to the implementation of the first set of new American tariffs.

All of these policy shifts are sowing havoc for business. U.S. economic data has begun to reflect the enormous changes now being implemented by the new Administration. The most recent unemployment rate of 4.1% was released last Friday, slightly exceeding economist expectations of 4.0%; however, these figures did not include the wave of work force reductions being implemented on Federal employees. The figure contains neither the roughly 75,000 government workers who accepted the “deferred resignation” offer nor the approximate 200,000 (and counting) Federal jobs eliminated year-to-date.

Due to the whipsawing changes to trade policy, companies are struggling to adapt to the rapidly changing global markets. With this substantial uncertainty, there has been a sharp increase in capital markets volatility. Specifically, the equity markets have seen a significant sell off with the S&P 500 and Nasdaq both down over 5% in the last week and with the Nasdaq down an even more severe 12% in the last month. The market’s fear gauge meanwhile has climbed over 70% in the last week – going from a below average volatility reading to its current reading reflecting expectations of near-term volatility sharply above normal. Yes, it is time to keep those seatbelts on and tight.