The American markets collapsed Wednesday after new economic figures showed that GDP dropped by 0.3% in the first quarter of 2025, increasing the chances of recession at 74%, based on investor models and Wall Street models.
The Commerce Department released the numbersConfirming that the economy has decreased between January and March. This has made it the first negative district since the beginning of 2022.
The contraction struck Donald Trump's second term when he launched his new wave of economic policies, in particular his commercial wars. This drop attracted a lot to Wall Street off guard.
Dow Jones forecasts, economists had predicted a 0.4% increase in GDP, expecting continuous growth after gaining 2.4% in the fourth 2024. But this confidence was quickly shredded, once companies and consumers began to flood imports to avoid Trump prices that took effect in April.
Imports Slash GDP while businesses rush into prices
The import overvoltage was brutal. Imports increased by 41.3%, goods alone jumping by 50.9%, reducing more than 5 percentage points of total GDP. At the same time, exports increased only 1.8%. The net impact has made the economy much lower than expected, even if some economists have declared that it could rebound later if imports facilitate.
Stock traders reacted hard. The industrial average of Dow Jones fell 615 points, or 1.5%. The S&P 500 fell by 2% and the Nasdaq Composite bled 2.6%.
April closed its doors in red, and this printing of GDP nailed the coffin on any last -minute rally. The blow also landed while Trump was trying to advance new economic strategies, most of which now seem to throw sand in the gears instead of oil.
On Truth Social, Trump posted that the slowdown was due to a “overhang of Biden” “and told the Americans” to be patient !!! While saying that his economic plans would take time to provide results.
But investors and companies do not buy it yet. Scott Helfstein, head of investment strategy at Global X, said the back and forth of Trump policies is a problem.
“The continuous sequence of policy inversions has led to very high levels of uncertainty for businesses and investors,” said Scott. He described the GDP report “a canary in the coal mine for the new administration” and said that people may have underestimated the damage that Trump's approach could cause short term.
Consumer spending slows down, investment jumps, fears of recession increase
Consumer spending has not crushed, but it has slowed heavily. Personal consumption expenses increased by 1.8%, which seems good until you realize that it is less than half of the leap of 4% in T4 2024. This number is also the lowest since T2 2023, so that people are clearly tightened.
However, commercial investment has exploded. Private interior investment increased by 21.9%, and a large piece of it came from a peak of 22.5% of equipment expenditure. Analysts say this is probably due to companies that buy machines and equipment early before prices push even higher prices.
On the other hand, the federal government withdrew. Expenditure dropped by 5.1%, which drew approximately a third of percentage from the GDP number. This mixture – breathtaking consumers, heavy imports, decrease in public spending – is now up to the risk of recession on all Wall Street models.
At the center of all of this is Trump's trade policy. In early April, Trump stuck a 10% tariff on all business partners, with additional “reciprocal” prices targeting certain countries. Then on April 9, he took a break, giving a 90 -day window to conclude better offers. But so far, there is no agreement, and the initiates say that the discussions are dragging. Uncertainty is to destroy confidence.
The idea that the worst is over is not convincing much. At Goldman Sachs, the macro strategist, Vickie Chang, told customers that even if the market seems to settle, it could be the bad signal. “In the equity corrections, the markets tended to be low near the hollow of economic activity,” said Vickie.
She explained that if the market thinks that the main problem has peaks, it could start to increase before the economy improves. But she warned that this situation could still explode. “We always think that there is a significant vulnerability in a recession scenario, even if the worst of the underlying” shock “has passed,” added Vickie.
Skepticism increases rapidly. Vickie stressed that the 19% drop in S&P 500 this year does not even approach the type of pain usually observed during a real recession. Since 1950, there have been five larger accidents that did not even involve it. And in the last three recession, the average market drop was 47% brutal.
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