Economic Slowdown Fears Rattle Markets — Evening Brief – 03.10.25
Wall Street kicked off the week with a broad market slump, with the Nasdaq Composite plunging 4.2% on an intraday basis amid widespread anxiety over the U.S. economy’s condition. This unease isn’t limited to stocks; Treasury yields are also sliding, reflecting deeper concerns.
The year kicked off with a positive outlook for the economy, and financial markets were factoring in expectations of sustained growth. However, this rapid shift from optimism to recession fears suggests fragile investor confidence, heavily influenced by government policy uncertainty.
At the start of 2025, the US 10-year Treasury yield climbed, buoyed by expectations of stubborn inflation and solid growth. Now, while inflation views hold steady, confidence in growth has faded.
The shift into bonds signals a growing demand for safer assets, as risk appetite for equities has diminished. Two ETFs showcase this trend, with equities posting a 1.7% loss year-to-date, as measured by the SPDR S&P 500 (SPY), while bond prices have risen, led by long-term Treasuries (TLT), which have gained 3.9%.
President Trump’s aggressive yet vague tariff strategy is rattling the outlook. It risks triggering retaliation and a possible trade war, while his unpredictable policy shifts amplify uncertainty.
“Just a couple of weeks ago we were getting questions about whether we think the U.S. economy’s re-accelerating —- and now all of a sudden the R word is being brought up repeatedly,” said Gennadiy Goldberg, head of US interest rate strategy at TD Securities, referring to recession risk. “The market’s gone from exuberance about growth to absolute despair.”
Even Trump is hesitant to rule out the possibility of a recession at some point in 2025. When asked on Sunday about the chances of an economic downturn this year, the president responded, “I hate to predict things like that” during an interview. “There is a period of transition because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing.”
Bond buyers are playing it safe, snapping up short-term Treasuries as the two-year yield, tied closely to rate expectations, fell five basis points to 3.95%. The 10-year yield also dipped to 4.25%.
Fed Chairman Powell is downplaying the odds of significant economic slowdown. Last Friday, he said he’s not worried about the US economic outlook. “Despite elevated levels of uncertainty, the US economy continues to be in a good place. Sentiment readings have not been a good predictor of consumption growth in recent years.”
Economists disagree, with 91% in a Reuters poll citing heightened downturn risks from Trump’s erratic trade moves. Barclays’ Jonathan Millar added, “With constant changes, the future’s murky—recession risk is hard to ignore.”
“Given this is so uncertain and that there are new announcements every hour or so, it’s kind of unclear what the environment is going to look like. It’s hard to deny the risk of a recession has intensified,” said Jonathan Millar, senior U.S. economist at Barclays in New York.
A growth dip is never ideal, but it’s hitting as inflation lingers above the Fed’s 2% goal, stoking stagflation fears. If Treasury yields keep dropping, it’ll signal investors increasingly betting on a recession ahead.