The drop in stock quotes could reflect not only the fear of a recession. They can also contribute to provoking it because consumers retract spending in response to evaporation of their wallets.
This time, maybe the Stock Exchange be The economy.
Financial markets around the world have collapsed in the days since President Donald Trump announced generalized tariffs, triggering a world commercial war. Last week, the S&P 500 index fell more than 10 percent in two days and on Monday he experienced strong fluctuations in the news of new tariffs and delays rumors. The stock market rates of Asia and Europe have also fallen strongly.
Experts often warn that the stock market can be a misleading measure of the economy in general. Actions prices may vary for various reasons: technological advances, changes in consumer preferences or modifications of fiscal policy or interest rates.
However, sometimes markets transmit an economic message and, in recent days, have spoken with unusual clarity. The overwhelming majority of investors believe that Trump’s tariffs and reprisals of their commercial partners will cause a price increase, less growth and, possibly, a world recession.
The drop in stock quotes could reflect not only the fear of a recession. They can also contribute to provoking it because consumers retract spending in response to evaporation of their wallets.
It is possible that a few days of agitation do not matter much, said Ryan Sweet, head economist of the United States in Oxford Economics, a forecast company, “but if the falling market fall persists for a few weeks, a couple of months, economic costs begin to accumulate rapidly.”
The direct effects of tariffs will affect more force and moderate income consumers, who tend to spend more on food, clothing and other goods subject to taxes, and have less savings to protect themselves from the rise in prices. However, market falls will be felt with greater intensity among those who have higher income because they have shares and other investments in a disproportionate manner.
These richest homes have played a crucial role to boost consumption spending in recent years, since homes with lower income have been affected by price increase, high interest rates and slowdown in salary growth. Now, those who win the most could become more cautious as their investments lose value.
“A friend has gone through my office today and she told me: ‘Well, I’m not going to reform my kitchen because all my budget for that has vanished in the bag in the last three days,” said Tara Sinclair, economist from George Washington University.
The well -off households will not be the only ones affected by the fall of stock market contributions. Most Americans have actions directly or through retirement accounts. And the segment that has actions of individual companies has increased in recent years, partly due to the rise of investment in shares that began during the pandemic.
Sweet estimates that the “wealth effect” – the amount that households, together, increase or decrease their expense in response to stock market changes – is four times greater than before the pandemic. This makes the economy more vulnerable to market falls.
“There are hundreds of billions of potentially lost spending,” he said.
A decrease in the expense of that magnitude would affect the entire US economy of 30 billion dollars. Companies have already become more cautious when hiring and investing in the midst of uncertainty about tariffs and other policies. They have mostly resisted cutting jobs, but that could quickly change if sales begin to decrease.
“That is the transmission mechanism of a recession,” said Michael Gapen, chief economist of Morgan Stanley in the United States. “A weaker demand among higher income households, and companies could order dismissals, and normally those layoffs re -impact the lowest and moderate income households.”
The recent market movements suggest that these fears are increasing. The actions of technological companies, automobile manufacturers and other companies with world supply chains have suffered some of the greatest declines. But losses have not been limited to companies most directly affected by tariffs. Aerolineas, hotel operators and other companies that offer services to consumers with available income have also fallen.
“What we are seeing is that it affects large companies, the little ones and everyone,” said Sinclair.
Oil prices have also fallen abruptly. This suggests investors that economic activity is likely – including travel, maritime transport and infrastructure investment – weakens, not only in the United States, but throughout the world. In fact, other countries can be more affected because exports represent a most of their economies.
“The rest of the world is much more linked to world trade than us,” said Gapen. “It is not a good recipe for world growth. It is even more likely to produce a world recession than an American.”
Many investors are optimistic about the possibility of Trump reconsidering their tariff plans before they cause generalized dismissals or business breaks. But, even if it does, it is not clear if the damage can be completely undone because, after weeks of political reversions, it is possible that corporate leaders are not sure that the tariff threat has been overcome.
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“Companies have a huge number of questions and not many answers, and when that is the situation they probably feel more comfortable taking refuge in the bunker,” Sweet said. “They are retracted in hiring, and retract in investment in structures and equipment and software.”