Recession fears push stocks
and investor sentiment lower

Key takeaways:

• Stock markets are fluctuating under the strain of uncertainty around economic growth and the potential for a recession.
• Volatility and drawdowns are not anomalies in the market; they are instead common and highlight the importance of a long-term investment horizon.

03/12/2025 – A growing murmur among investors suggests that U.S. economic growth may be faltering. Occasionally, you can even hear a faint but persistent mention of the dreaded "recession" word.

Most notably in the last week, the Atlanta Fed’s Real GDP "Nowcast" on March 3 projected an estimated negative annualized growth rate for Q1 of -2.8%. One negative quarter does not make a recession (the official definition is two consecutive quarters of negative annualized GDP growth), but this is a precipitous decline from the sanguine growth rate of 4% just a few weeks ago.

Other disappointing data releases in the past few weeks underscore a potential loss of economic momentum: weakness in services Purchasing Managers Index (PMI), tepid retail sales, and slumps in the housing market. Additionally, there are concerns that analysts may reduce S&P 500^® Index earnings-per-share estimates because of tariffs and trade issues.

While not guaranteed, it’s becoming more likely that the U.S. economy may experience a soft patch in the first half of this year. Equity markets—ever the barometer of investor sentiment—continue to fluctuate under the strain of this uncertainty. The CNN Fear & Greed Index captures these emotional swings; it shifted to "extreme fear" over the last two weeks. The American Association of Individual Investors’ weekly survey also shows continued bearish sentiment.

Daily price movements in the stock market reflect this uncertainty as investors react to headlines about tariffs. For instance, after the S&P 500 declined by 1.8% on March 6, the index moved over 1% in either direction for six consecutive days—the longest such streak since November 2020. Beneath the index level, however, a shift in sector leadership continues to unfold as investors reassess the financial landscape.

Despite the recent modest pullback, history offers a steadying perspective for investors. Volatility, uncertainty, and periods of decline are not anomalies or reasons for panic. Instead, investors should remember that intra-year drawdowns are common and underscore the importance of maintaining a long-term horizon.

As the accompanying chart shows, there have been stock market retreats every year since 1990, with the average decline being 14%. Remarkably, in the years when the S&P 500 experienced a double-digit decline, the market ended the year with a positive return 64% of the time, or 13 out of 20 instances.

Market drawdowns, though jarring when they occur, are par for the course in investing. Recent volatility and bearish sentiment surrounding trade and economic growth may unsettle investors, but history shows that uncertainty often breeds opportunity for those with a financial plan and long-term outlook.