As of now, the S&P 500 has declined by 5.9 percent this year, while the NASDAQ has fallen by over 10 percent during the same period.
Should you consider buying the dip or selling during a rebound? The answers largely depend on your faith in the stock market’s technical indicators versus its fundamental health. Nevertheless, a wave of panic and uncertainty is sweeping across the nation.
There’s a growing acknowledgment that economic growth is slowing, inflation is on the rise, and job security is waning. Concerns are also surfacing regarding how President Trump’s policies may be exacerbating these issues.
Many people share the sentiment that the federal government has become excessively large and overly controlling. They are acutely aware of the rampant fraud and waste, recognizing that $2 trillion annual deficits are untenable. The unsustainable trajectory of government debt has turned into a serious problem.
Yet, they desire fixes that come without complications. Upon Trump’s inauguration, there was an unfounded hope that he could effortlessly eliminate waste, reduce government size, and balance the budget without enduring hardships. That optimistic view is quickly eroding.
Furthermore, the Trump administration is currently unwavering in its commitment to “America First” policies. These approaches are proving to be disruptive, with tariffs and the looming threat of tariffs generating uncertainty.
What implications will the erratic trade wars have on the prices of imported goods? How will these price hikes affect consumer spending and investment patterns?
Moreover, Trump and his administration appear indifferent to whether their policies lead to a stock market crash or a recession. Treasury Secretary Scott Bessent opines that a reset of the economy is essential after years of growth fueled by federal spending and inflated asset prices. Recently, he stated to CNBC:
“There’s an adjustment. We’ll see whether there’s pain.”
This week, stock market investors experienced a minor setback, and it did not sit well with them.
Unofficial Recession
As the economy adapts to the new Trump era and overvalued stocks face diminishing prospects, investors will likely need to reassess what they can tolerate in terms of discomfort. If a 10 percent drop in the NASDAQ elicited complaints, how fierce will the backlash be if it falls by 50 percent or more?
During the same CNBC interview, Bessent emphasized that “there is no Trump put.” This comment effectively nullified the unspoken understanding between Wall Street and the Federal Reserve that has been in place since 1987, whereby the Federal Reserve would create a safety net during times of market turmoil.
While stocks are in decline, evidence continues to mount that economic momentum is faltering. Key sectors such as construction spending, international trade, auto sales, and both ISM manufacturing and service indexes are showing signs of weakness. These indicators suggest a contracting economy.
Gross Domestic Product (GDP) data for the first quarter of 2025 will not be available until April 30, but the Federal Reserve Bank of Atlanta’s GDPNow forecast currently projects a GDP rate at a worrying minus 2.4.
However, Trump seems oblivious to these developments. “I don’t see a recession at all,” he stated on Tuesday.
Technically speaking, Trump has a point. A recession is usually only confirmed after two consecutive quarters of negative GDP. Hence, by the time the National Bureau of Economic Research makes its official announcement, the economy has already been in recession for at least six months.
In the meantime, based on current forecasts, the U.S. economy is indeed shrinking.
Stagflation
Recessions are an intrinsic part of a healthy economic cycle. They serve as critical periods for correcting mistakes, reallocating misused capital, directing workers into more productive roles, and laying the groundwork for future growth.
However, the benefits of recession do not lessen their difficulties. Losing a job, missing mortgage payments, and facing car repossession are no laughing matter.
Moreover, the fallout from a recession can affect individuals, small businesses, and corporations alike. As economic activity tapers off, all parties bear the brunt. If the downturn is severe enough, it can jeopardize the entire financial system.
Consider the mortgage crisis of 2008-09. Before it ended, Lehman Brothers, a bank with a history dating back before the Civil War, ceased to exist.
Indeed, recessions are tough, but the situation can worsen when they coincide with rising consumer prices.
For instance, when economic contraction is accompanied by inflation, the result is stagflation. In this scenario, the misery index—calculated as the sum of the unemployment rate and the Consumer Price Index (CPI)—soars. Experiencing unemployment while facing escalating prices for essentials is harsh.
Unfortunately, stagflation has arrived. This week, the Bureau of Labor Statistics released its CPI report, indicating that CPI rose by 2.8 percent over the past year.
While this rate is an improvement from the peak of 9.1 percent in June 2022, in the context of prior high inflation, a CPI of 2.8 percent brings about cumulative effects that must not be ignored.
Truth Shall Prevail
In all sincerity, the notion that consumer price inflation is easing is largely misguided. Prices continue to rise, albeit at a slower rate than in previous years. Yet, they are undeniably on the rise.
More critically, the cumulative nature of year-on-year price increases must be recognized. Over the last five years, consumer prices, as measured by the CPI, have surged more than 23 percent—from 258.115 in March 2020 to 319.082 in February 2025. If we look back a decade to March 2015, prices have risen over 35 percent.
Consequently, an additional 2.8 percent on top of the existing index exerts a more significant impact now than it would have prior to COVID. This aligns with official data indicating that inflation has been more severe than reported over this period.
Thus, the harsh realities are clear:
The economy is in a recession. Individuals are losing jobs. Trade activity is declining. Consumer prices are rising. Stocks continue to fall. Additionally, Houthi attacks on shipping vessels near Yemen in the Red Sea are escalating, impacting trade routes to and from the Suez Canal.
Eventually, all these issues will need resolution. Adjustments are necessary and inevitable.
Yet it’s not all despair. Spring is just around the corner in the northern hemisphere. It brings with it the return of songbirds, greenery, warmer weather, longer days, and the excitement of baseball season.
Moreover, gold—recognized as true and reliable currency—is on the verge of reaching $3,000 per ounce.
Ultimately, truth will prevail.
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Sincerely,
MN Gordon
for Economic Prism
