Stock Market Faces Significant Declines During Trump Presidency

Stocks took a sharp downturn on Friday, contributing to the worst week since President Trump’s inauguration. The S&P 500 index fell by 1.7 percent, almost eliminating the gains it had accumulated since Trump assumed office just a month ago.

One key factor behind this decline was an unexpected drop in the University of Michigan’s consumer sentiment index. This index fell to its lowest level in over a year, reflecting growing concerns among Americans about persistent inflation.

With the S&P 500 now just 0.3 percent higher since Inauguration Day, other stock indexes were similarly affected, with the Nasdaq Composite decreasing by more than 2 percent on the same day.

The consumer sentiment survey indicated that Americans are increasingly anxious about the economy’s future. Respondents expect an annual rise in prices of 3.5 percent over the next five to ten years, the highest forecast since 1995. These concerns have made consumers hesitant to spend on major purchases, and many expect the unemployment rate to increase in the coming year.

For investors, inflation expectations are particularly crucial, especially as the Federal Reserve has indicated it is unlikely to lower interest rates unless inflation approaches its 2 percent target. Currently, the Fed's preferred measure of inflation sits just below 3 percent.

Concerns about inflation have heightened due to the Trump administration’s policies, including tariffs on U.S. trading partners and immigration deportations. These policies have raised alarms about potential inflation spikes, which could make goods more expensive and lead to increased interest rates on loans and mortgages.

High interest rates typically put downward pressure on the stock market. Additionally, worries about accelerating inflation could hinder consumer spending, a vital driver of the U.S. economy since the COVID-19 pandemic began five years ago. This scenario raises fears of "stagflation," characterized by stagnant economic growth alongside rising prices.

This week did see the S&P 500 reach a record high, but instead of prompting further stock gains, those peaks have made investors uneasy. Many are questioning whether companies can deliver results that justify such high valuations, which could prevent stock prices from falling.

Concerns among investors were already heightened prior to the market declines due to troubling signals from corporate leaders, such as Walmart. In its recent earnings report, Walmart mentioned expectations of slower growth amidst uncertainties tied to U.S. tariffs.

Moreover, the sell-off on Friday was possibly intensified by the simultaneous expiration of significant derivative contracts linked to the stock market.

Stocks, Market, Inflation