- Who We Serve
- What We Do
- About Us
- Insights & Research
- Who We Serve
- What We Do
- About Us
- Insights & Research
What Spooks Investors? Widespread Uncertainty
Trade tension, government layoffs and deteriorating consumer sentiment have investors worrying about what’s next.
- Equity
- Fixed Income
- Portfolio Construction
Key Points
What it is
We break down the latest market shifts, analyzing trade policy, investor sentiment and whether recession is ahead.
Why it matters
Policy and economic uncertainty has investors on edge, resulting in a correction for U.S. stock.
Where it's going
To find more clarity, we think investors will focus on trade, immigration, tax and spending policies, and the Fed’s response.
Over the past three weeks, U.S. stocks as measured by the S&P 500 have experienced a , defined as a 10% fall in prices from their peak. Unpredictable U.S. tariff policy, retaliation by trade partners and deteriorating consumer confidence have spooked investors raising worries about a potential U.S. recession. While we think the uncertainty increases recession risk, we expect growth of the resilient U.S. economy to only slow rather than crumble. Let’s take a closer look.
With uncertain trade policy and large scale layoffs of federal workers, U.S. business and consumer sentiment surveys have weakened and analysts are starting to downgrade corporate earnings estimates. A large body of research suggests that trade policy uncertainty historically has delayed investment, causing economic contraction. Federal worker layoffs can also spill over to the private sector as ancillary contracts are cancelled affecting economic activity. These developments have led to investors turning on U.S. stocks and a sell-off in higher beta equities along with a rally in .
Is this a growth slowdown or a ? The developments so far do not suggest a recession but growth estimates for 2025 are falling. The U.S. economy entered the year strong and forecasts still point to growth in the range of 1.5% to 2%. Meanwhile, the labor market is in a decent spot, with an average of 200,000 payrolls added the past three months while wages adjusted for inflation have grown to post-COVID highs. And we expect the Federal Reserve to continue to ease monetary policy, providing more economic support.
To be clear, we believe that there is greater uncertainty around our baseline of slowing but positive growth. Prolonged policy uncertainty could weigh on investor sentiment in the coming months. To find more clarity, we think investors will focus on trade, immigration, and tax and spending policies from the new administration and the Fed’s response to the changing policy backdrop.
The interest rates investors receive from holding U.S. government debt securities. Declining yields typically indicate increased demand for these safe-haven assets, often signaling economic uncertainty or expectations of slowing growth.
A negative outlook on the market where investors expect stock process to declines. This assumption often leads to lower stock prices and increased volatility.
A decline of 10% or more in a stock market index (like the S&P 500) but less than 20% from their recent high point.
Main Point
Slowdown, but Not Recession
Unsteady U.S. tariff policy, retaliation by trade partners, and deteriorating consumer sentiment have unsettled investors likely worried about recession. While we think the uncertainty increases recession risk, we expect growth of the resilient U.S. economy to only slow rather than crumble.
Capital Market Assumptions: 2025 Edition
Anwiti Bahuguna, Ph.D.
Chief Investment Officer — Global Asset Allocation
Anwiti Bahuguna, Ph.D., is chief investment officer of global asset allocation for Northern Trust Asset Management. She is responsible for managing investment performance, process and philosophy for multi-asset strategies globally. Anwiti leads NTAM’s strategic asset allocation, tactical asset allocation and capital market assumptions, and oversees the portfolio construction group and multi-manager business.
Read BioContact Us
Interested in learning more about our expertise and how we can help?
IMPORTANT INFORMATION
Northern Trust Asset Management (NTAM) is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Northern Trust Asset Management Australia Pty Ltd, and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.
Issued in the United Kingdom by Northern Trust Global Investments Limited, issued in the European Economic Association (“EEA”) by Northern Trust Fund Managers (Ireland) Limited, issued in Australia by Northern Trust Asset Management (Australia) Limited (ACN 648 476 019) which holds an Australian Financial Services Licence (License Number: 529895) and is regulated by the Australian Securities and Investments Commission (ASIC), and issued in Hong Kong by The Northern Trust Company of Hong Kong Limited which is regulated by the Hong Kong Securities and Futures Commission.
For Asia-Pacific (APAC) and Europe, Middle East and Africa (EMEA) markets, this information is directed to institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. This information may not be edited, altered, revised, paraphrased, or otherwise modified without the prior written permission of NTAM. The information is not intended for distribution or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. NTAM may have positions in and may effect transactions in the markets, contracts and related investments different than described in this information. This information is obtained from sources believed to be reliable, its accuracy and completeness are not guaranteed, and is subject to change. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor.
This report is provided for informational purposes only and is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Recipients should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Indices and trademarks are the property of their respective owners. Information is subject to change based on market or other conditions.
All securities investing and trading activities risk the loss of capital. Each portfolio is subject to substantial risks including market risks, strategy risks, advisor risk, and risks with respect to its investment in other structures. There can be no assurance that any portfolio investment objectives will be achieved, or that any investment will achieve profits or avoid incurring substantial losses. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Risk controls and models do not promise any level of performance or guarantee against loss of principal. Any discussion of risk management is intended to describe NTAM’s efforts to monitor and manage risk but does not imply low risk.
Past performance is not a guarantee of future results. Performance returns and the principal value of an investment will fluctuate. Performance returns contained herein are subject to revision by NTAM. Comparative indices shown are provided as an indication of the performance of a particular segment of the capital markets and/or alternative strategies in general. Index performance returns do not reflect any management fees, transaction costs or expenses. It is not possible to invest directly in any index. Net performance returns are reduced by investment management fees and other expenses relating to the management of the account. Gross performance returns contained herein include reinvestment of dividends and other earnings, transaction costs, and all fees and expenses other than investment management fees, unless indicated otherwise. For U.S. NTI prospects or clients, please refer to Part 2a of the Form ADV or consult an NTI representative for additional information on fees.
Forward-looking statements and assumptions are NTAM’s current estimates or expectations of future events or future results based upon proprietary research and should not be construed as an estimate or promise of results that a portfolio may achieve. Actual results could differ materially from the results indicated by this information.
Not FDIC insured | May lose value | No bank guarantee