The reality may have disappointed those hoping that Donald
Trump’s return to the White House would propel the U.S. stock market to new
highs — and, more importantly, help sustain those gains. Since February 20, the
S&P 500 index has
been on a downward trajectory.

As many have echoed, the main concern is the growing fear
among investors that the U.S. economy could slip into recession. Trump’s
trade wars, which could lead not only to an economic slowdown but
also to rising inflation, appear to be the main culprits for this anxiety.

According to the latest Survey of Consumer Expectations,
inflation is expected to be 3.1% a year from now, just slightly rebound from
the 3% forecast in January. The Fed’s long-term inflation target is 2%, so the
regulator will likely maintain a hawkish stance unless the economy shows signs
of slipping into recession.

And the latter is exactly why markets expect we will
ultimately see more rate cuts this year than expected, possibly as early as
this summer or even in May. However, Jerome
Powell recently stated, “Tariffs can increase
inflation, and the Fed needs time to assess their impact.”

Will this downward trend continue?

Recently, Wells Fargo and Deutsche Bank projected the index
could hit 7,000, while Morgan Stanley forecasted 6,600, and JP Morgan predicted
6,500. However, as time passes and Trump’s policies continue to create
uncertainty, these overly optimistic projections have been revised downward.

In addition to trade tensions and rising inflation, which
are likely to keep markets nervous, the US stock market continues to trade
above long-term averages due to the heavy weighting of the IT sector. Thus,
there is still room for further declines in the S&P 500 and the Nasdaq.

As for Trump’s promised economic boosts-such as ending all
wars, cutting taxes, balancing the federal budget, and bringing manufacturing
back to US soil-they will not
be easy to achieve. How, for example, can you cut the
federal budget by one-third while maintaining high economic growth?

However, keep in mind that any short-term market correction
could be followed by upward swings, as is often the case with volatile markets.
The market’s ability to recover after such declines may depend on the broader
economic environment, including geopolitical risks ahead.

In particular, Trump’s implementation of retaliatory
tariffs, expected around April 2, could send more shock waves through the
market, triggering further uncertainty. Investors are not known for their
nerves of steel, and fear and caution will likely remain strong themes in the
coming weeks.