In late October 2024, former President Donald Trump made a critical warning at a rally in Pennsylvania, cautioning that a vote for Vice President Kamala Harris would directly lead to a catastrophic market meltdown. Trump’s rhetoric suggested that losing the election would result in significant economic turmoil. “You want to see a market crash?” he asked the audience, predicting that if Harris were to win, “the market would go down the tubes.” His dire predictions did not end there; he went on to forecast a “Kamala economic crash,” likening it to the Great Depression of 1929.
While Trump ultimately won the election, early signs hinted that his predictions might not be far off. Trump’s presidency was marked by the introduction of tariffs, which he claimed were necessary to protect American interests. However, the tariffs seemed poised to rapidly transform a booming stock market into a bear market—an unprecedented shift rarely overseen by any president in American history. Specifically, if the stock market were to close in bear territory—a decrease of 20% from its peak—it would be the earliest transition from a bull to a bear market for any administration since the S&P 500’s records began in 1957. By the time the dust settled, the S&P 500 had plummeted 15% since Inauguration Day, with ominous forecasts predicting even larger losses.
Historical context is critical in understanding this downturn. The only comparable decline for a sitting president in such a short time frame was witnessed during George W. Bush’s presidency in early 2001. At that point, market drops were already expected due to the economic backdrop of the dot-com bubble bursting. Conversely, Trump inherited a substantial bull market where the S&P 500 had gained an impressive 23% just before he took office. This dichotomy raised eyebrows, as many observers linked the significant market decline directly to policies initiated after Trump’s “Liberation Day,” a term he used when announcing his aggressive tariff strategy.
Economic analysts weighed in on the stark parallels between past and current market conditions. As Trump announced his new tariffs, market reactions became increasingly volatile, with significant losses following his declaration. Ed Yardeni, founder of Yardeni Research, highlighted the issue in a communication to clients, detailing how “Liberation Day” was soon followed by “Annihilation Days” as stock valuations suffered. The consequences were severe, reminiscent of past crashes, including those in 1987, during the 2008 financial crisis, and the 2020 COVID-induced downturn.
Yet, the situation was further complicated by broader economic indicators. Traditionally, stock market fluctuations have mirrored the larger economy; with over 60% of Americans now participating in the stock market—compared to less than 25% in the early 1970s—the stakes were significantly higher. Economists and analysts began calling into question the implications of Trump’s tariffs, which many believe could unleash supply shocks similar to the oil price crisis of the early 1970s. David Kotok, a co-founder of Cumberland Advisors, argued that these tariffs act as a “massive tax hike imposed as a sales tax on American consumers,” putting the economy at risk of higher inflation coupled with stagnant growth.
As a result, major financial institutions revised their recession predictions. JPMorgan raised the likelihood of a recession to 60%, Goldman Sachs to 45%, and HSBC echoed similar sentiments. The potential for consecutive quarters of negative GDP growth became a talking point among economists as forecasts suggested a looming risk of economic stagnation. Historically, such occurrences, particularly in a newly inaugurated presidency following a non-recession year, were rare, with the most recent example dating back to 1953 during the Korean War.
The fears had begun to spiral into a self-fulfilling prophecy. If market sentiment turned predominantly negative, experts warned that this could lead to consumer pullback in spending and further exacerbate economic woes. RBC Capital Markets noted that the median loss for the S&P 500 during recessionary periods is approximately 27%, underscoring the potential severity of the looming economic crisis. All these factors combined create a fragile environment where consumer confidence can diminish rapidly, posing serious threats to the stability of the U.S. economy. As Trump’s presidency progressed, the critical question remained: could he be held accountable for the downturn, especially in light of the market conditions he inherited? The relationship between Wall Street and Main Street would determine the economic narrative in the coming months.