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US indices plunged on Monday with the S&P 500 down 2.3%, Nasdaq 100 falling 3.4%, and the Dow Jones Industrial Average dropping 1.2%, as investors fled equities amid growing fears of a recession triggered by trade tariff uncertainty.
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President Trump acknowledged a "period of transition" when asked about recession concerns in a Fox News interview, signaling he may accept short-term market pain for his broader trade policy goals, which wiped out all post-election gains for major indices.
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Several Wall Street firms slashed economic forecasts, with Goldman Sachs cutting its 2025 GDP outlook to 1.7% from 2.4% and Morgan Stanley reducing projections to 1.5% from 1.9%, citing "considerably more adverse" trade policy assumptions.
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Stagflation concerns emerged as economists predict slower growth combined with persistent inflation, with Goldman now expecting the Fed's preferred inflation gauge to end the year at 3%, up from previous mid-2% range forecasts.
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Tech stocks led market declines with the "Magnificent Seven" megacaps tumbling 5.3% collectively, as Tesla plunged more than 12% to its lowest level since before the election after UBS lowered its price target citing softening demand.
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Bitcoin fell below $80,000, now down 27% from its post-inauguration high despite Trump's pro-crypto stance, with investors disappointed that the announced strategic bitcoin reserve will only include cryptocurrency already held by the government.
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The VIX volatility index hit its highest level this year as market sentiment shifted dramatically, with a majority of individual investors now expecting stock prices to drop over the next six months according to an AAII survey.
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Treasury yields declined with the 10-year falling seven basis points to 4.23% on expectations that economic slowdown would force the Federal Reserve to cut interest rates more aggressively.
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WTI crude oil continued its slide to three-year lows, falling 1% to $66.40 per barrel as Trump's tariff policies, OPEC+ production increases, and potential peace talks in Ukraine pressured energy markets.
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Mohamed El-Erian elevated his recession forecast to 25-30% probability, up from 10% previously, while betting markets now place 40% odds on a recession being officially called by year-end.
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