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The selloff this week has been driven largely by a sharp drop in the “Magnificent 7” tech stocks, which have fallen 14% from their recent peak. Their price-to-earnings ratio has declined from 30x to 26x, signaling investor concerns over stretched valuations.
How Big of a Risk Is a Recession?
Recession risks are rising as tariffs create new economic headwinds. On Wednesday, Pimco’s Alec Kersman said the probability of a U.S. recession in 2025 has climbed to 35%, more than double the 15% estimate from December. He pointed to the economic drag from trade restrictions as a key factor.
Despite this increased risk, Pimco still expects U.S. GDP to grow between 1% and 1.5%. Some analysts believe tariffs could even boost domestic spending, cushioning the economic impact.
Could Tariffs Actually Help the Economy?
While most analysts see tariffs as a negative, some argue they could spur consumer spending at home. Kamal Bhatia, CEO of Principal Asset Management, noted that trade barriers often trigger “patriotic” spending shifts, which could support economic growth. Since consumer spending makes up nearly two-thirds of U.S. GDP, this shift could partially offset the drag from tariffs.
What Should Traders Watch Next?
With markets still reacting to this week’s volatility, traders should prepare for more uncertainty. Key events to watch include further trade policy announcements, economic data releases, and the Federal Reserve’s stance on interest rates. Corporate earnings in the coming months will also be critical in determining whether the S&P 500 can recover from its recent losses.
More Information in our Economic Calendar.
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