The Mounting Case Against U.S. Stocks

A new round of recession fears rattled markets Monday, sending the Dow Jones Industrial Average down nearly 900 points and eroding Wall Street consensus that U.S. stocks would be among this year's biggest winners.

- Krystal Hur

Many investors had anticipated that American exceptionalism—the perceived advantages the U.S. has over other countries, such as its economic strength and technological innovations—would help drive another year of robust stock gains.

But worries about a trade war, signs of flagging growth and splinters in the artificial-intelligence trade have taken some of the shine off that optimism. President Trump over the weekend refused to rule out a recession this year, setting off a fresh wave of declines in U.S. stocks. The S&P 500 fell 2.7%, while tech-heavy Nasdaq Composite lost 4%. Bank stocks slid, along with shares of smaller companies perceived to be sensitive to the economy. Bonds rallied.

"This is the first time we've had an administration pretty much say with a straight face...the objectives are going to cause pain," said Shelby McFaddin, investment analyst at Motley Fool Asset Management.

While the U.S.'s strength is in question, other countries are ramping up efforts to revive their economies. China has unleashed more stimulus to meet its economic growth target. Germany announced a spending splurge on its military and infrastructure.

Markets were rattled after Trump's tariffs on goods from China, Canada and Mexico took effect, sparking swift retaliatory action. Stocks, bond yields and oil prices tumbled, with investors scrambling to assess the possible implications of a trade war on the U.S. economy.

The S&P 500 fell 3.1% last week, wiping out its postelection gains and pushing it into the red for 2025, a rare stint of underperformance versus many global peers. The Nasdaq Composite entered correction territory, a drop of 10% or more from its recent high.

Investors had largely brushed off Trump's inflammatory policy promises, including his pledge to levy aggressive tariffs on major U.S. trading partners, betting they were negotiation tools that wouldn't be implemented.