The Blubber

Recession Fears Rise as Markets React to Tariff Uncertainty

Financial markets are increasingly signaling a rising risk of recession, as uncertainty over tariffs and signs of economic weakness spread fear across Wall Street.

A JPMorgan Chase & Co. model now shows that the market-implied probability of an economic downturn has climbed to 31% as of Tuesday, up from 17% at the end of November. Indicators such as five-year Treasuries and base metals suggest an even higher risk—essentially a toss-up for a contraction. Similarly, Goldman Sachs Group Inc.’s model now places recession risk at 23%, rising from 14% in January.

Market Volatility and Trump’s Tariff Push

After a volatile day in markets Tuesday, economic sentiment is growing darker as money managers and corporate executives grapple with uncertainty created by President Donald Trump’s tariff threats. In his Congressional address Tuesday night, Trump defended his trade policies, acknowledging potential economic disruptions but emphasizing his goal to reshape global trade.

JPMorgan strategist Nikolaos Panigirtzoglou pointed to recent weakness in U.S. economic activity and declining business and consumer confidence.

"With softer economic data in the U.S. and already weaker business and consumer confidence in recent weeks, the tariffs implemented on March 4th on Canada, Mexico, and China are raising the risk of an even bigger hit to sentiment," he said. "In turn, this raises the specter of a U.S. recession, and markets have naturally priced in a higher probability."

Despite some hints of tariff relief for Mexico and Canada from U.S. Commerce Secretary Howard Lutnick, S&P 500 futures struggled to hold onto gains Wednesday.

Key Economic Indicators Flash Warning Signs

• Small-cap stocks, bonds, and base metals now suggest an even higher likelihood of economic contraction.
• U.S. factory activity nearly stagnated last month, with orders and employment contracting.
• Consumer confidence has dropped to its lowest level since 2021.
• Personal spending unexpectedly declined, alongside disappointing housing market data.

Mohamed A. El-Erian, president of Queens’ College, Cambridge, and a Bloomberg Opinion columnist, now sees the probability of a U.S. recession rising to 25% to 30%, up from 10% at the start of the year. El-Erian is among a growing number of Wall Street analysts worried about persistent inflation and falling consumer and business confidence.

JPMorgan’s recession probability model assesses risk by comparing pre-recession peaks of various asset classes with their troughs during past economic contractions. By this measure, prices of five-year Treasuries, base metals, and small-cap stocks now suggest a roughly 50% chance of recession. However, the investment-grade credit market remains more optimistic, placing recession odds at just 8%—though that’s still higher than the near-zero probability at the end of November.