Trump Administration Could Bring an Economic ‘Detox.’ What It Means for Stocks.
Investors may have nothing to fear but fear itself. But sometimes fear is more than enough.
4 min
As another week begins with more selling–all three major indexes are falling, with the Nasdaq Composite hit hardest–fear is undoubtedly running high in the market. The Cboe Volatility Index, Wall Street’s fear gauge, jumped 15% to 27 on Monday morning. That would be its highest close since Dec. 18, when it was at 27.62.
Uncertainty about government policy and the health of the economy is overshadowing positive data.
Tariffs are one part of the problem. Not only are they disruptive to global trade and lead to higher prices, but President Donald Trump has walked back their implementation and doubled down enough to give the market whiplash. And then there are worries about huge cuts to federal spending, including mass firings and slashing outlays for programs, with a budget fight that could lead to a government shutdown at the end of the week.
Investors have little incentive to keep the faith, especially because signs of economic weakness are starting to emerge.
“Prior to tariff uncertainty, Momentum factors were leading, and risk factor returns were stable,” notes 22V Research’s Dennis DeBusschere. “ Payrolls and PMI data indicate weaker growth at the same time tariffs are adding to uncertainty about the path of economic data and earnings.” The result is that stocks are swinging wildly, riskier names are out of favor, and defensive shares are the flavor of the month.
According to Sevens Report’s Tom Essaye, “until there’s some movement towards stable policy, the best we can hope for is a churn sideways between around 5,700 and 6,000 in the S&P 500.” The index broke below 5650 in morning trading Monday.
The problem is that the greater the losses, the more the market could be closing in on a “liquidation avalanche,” as Dohmen Capital Research’s Bert Dohmen puts it. The concern is that forced selling, such as to raise cash for margin calls on shares bought with borrowed money, or by money managers desperate to limit losses, creates a downward spiral.
Wall Street famously abhors unpredictability, but even more worrisome may be rhetoric from Washington, D.C., that indicates the Trump administration is fine with causing what it believes will be a short-lived downturn as it pursues long-term goals it considers more important.
Asked whether a recession on the way, the president declined to rule out the possibility. “I hate to predict things like that,” Trump told Fox News’ Sunday Morning Futures. “There is a period of transition, because what we’re doing is very big. We’re bringing wealth back to America.”
Treasury Secretary Scott Bessent, a former hedge fund manager, predicted “a natural adjustment as we move away from public spending to private spending, in an interview with CNBC. “The market and the economy have just become hooked, and we’ve become addicted to this government spending, and there’s going to be a detox period. There’s going to be a detox.”
As T.S. Lombard’s Dario Perkins notes, Elon Musk and others in Trump’s orbit have pointed to Argentina as a successful example of this strategy. President Javier Milei imposed strict austerity measures to combat inflation, leading to a brief recession in 2024.
Of course, “copying the policies of a country that had massive endemic corruption and was on the brink of hyperinflation is, er, problematic,” Perkins writes. “Yes, inflation is a bit high, but not so high that Musk and co should deliberately engineer a recession. Perhaps the new U.S. administration has forgotten what a ‘real’ recession is like.”
The 2008-2009 financial crisis was nearly two decades ago, and the U.S. only rebounded from the Covid-19 downturn so quickly and strongly because of huge government spending. That means it is “odd to see US policymakers talk as if they want to inflict damage on the economy, or at least do things that risk causing damage,” he notes.
The White House didn’t immediately respond to a request for comment.
Damage could snowball quickly. If big government layoffs continue at a time when hiring is already weak, it could lead to a further loss of confidence and even higher unemployment. And as history shows, recessions aren’t always quick or without damage.
“The US is not Argentina, and it is not facing an imminent debt crisis,” Perkins writes. “In any case, does anyone seriously think a recession in 2025 would lower America’s debt trajectory? Every recession I know has had the exact opposite effect.”
The good news is that we aren’t there yet. Earnings have held up well, and while the mention of tariffs in fourth-quarter conference calls was up 40% from their prior peak in 2018, mentions of a recession fell to their lowest point since the first quarter of 2018, as DataTrek Research’s Nicolas Colas notes.
“The dichotomy between record high ‘tariff’ and near-record low ‘recession’ mentions on investor calls neatly reflects the mood of corporate America,” he writes. “The C-suite is struggling to come to grips with tariff policy but remains fairly optimistic on the US economy. So far, anyway…Any change to the latter view would be unwelcomed.”
For his part, TS Lombard’s Perkins isn’t predicting a recession. Sevens Reports’ Essaye notes that concern about tariffs so far has been worse than their effects. While it makes sense to brace for volatility, “that negative scenario is not a foregone conclusion and actual facts on the economy and earnings [are] hanging on.” he says.
22V Research’s DeBusschere highlights that in aggregate, macroeconomic data still point to a very high probability that the U.S. economy is still expanding. “Over the past few weeks though, market internals have weakened to a level more consistent with economic slowdowns/heightened recession risk,” he says. “Markets are discounting a sharp slowdown that is not evident TODAY in actual data.”
The problem is that as long as chaotic moves in Washington, D.C., continue, that won’t matter for stocks.
“Although the U.S. will still likely avoid a recession this year, investor sentiment does appear to be headed toward another recession scare,” writes Paulsen Perspectives’ Jim Paulsen. “An actual recession would probably result in a bear market, but even an ongoing or worsening ‘fear’ of recession will likely magnify the current stock market correction.”
When the market gets clarity about what comes next, prices can recover. But until then, it is hard to see how stocks can rise consistently. Just the fear of a recession is enough to weigh on markets.
Write to Teresa Rivas at teresa.rivas@barrons.com
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A divide has opened in the tech job market between those with artificial-intelligence skills and everyone else.
JPMorgan Chase has a ‘strong bias’ against adding staff, while Walmart is keeping its head count flat. Major employers are in a new, ultra lean era.
3 min
It’s the corporate gamble of the moment: Can you run a company, increasing sales and juicing profits, without adding people?
American employers are increasingly making the calculation that they can keep the size of their teams flat—or shrink through layoffs—without harming their businesses.
Part of that thinking is the belief that artificial intelligence will be used to pick up some of the slack and automate more processes. Companies are also hesitant to make any moves in an economy many still describe as uncertain.
JPMorgan Chase’s chief financial officer told investors recently that the bank now has a “very strong bias against having the reflective response” to hire more people for any given need. Aerospace and defense company RTX boasted last week that its sales rose even without adding employees.
Goldman Sachs , meanwhile, sent a memo to staffers this month saying the firm “will constrain head count growth through the end of the year” and reduce roles that could be more efficient with AI. Walmart , the nation’s largest private employer, also said it plans to keep its head count roughly flat over the next three years, even as its sales grow.
“If people are getting more productive, you don’t need to hire more people,” Brian Chesky , Airbnb’s chief executive, said in an interview. “I see a lot of companies pre-emptively holding the line, forecasting and hoping that they can have smaller workforces.”
Airbnb employs around 7,000 people, and Chesky says he doesn’t expect that number to grow much over the next year. With the help of AI, he said he hopes that “the team we already have can get considerably more work done.”
Many companies seem intent on embracing a new, ultralean model of staffing, one where more roles are kept unfilled and hiring is treated as a last resort. At Intuit , every time a job comes open, managers are pushed to justify why they need to backfill it, said Sandeep Aujla , the company’s chief financial officer. The new rigor around hiring helps combat corporate bloat.
“That typical behavior that settles in—and we’re all guilty of it—is, historically, if someone leaves, if Jane Doe leaves, I’ve got to backfill Jane,” Aujla said in an interview. Now, when someone quits, the company asks: “Is there an opportunity for us to rethink how we staff?”
Intuit has chosen not to replace certain roles in its finance, legal and customer-support functions, he said. In its last fiscal year, the company’s revenue rose 16% even as its head count stayed flat, and it is planning only modest hiring in the current year.
The desire to avoid hiring or filling jobs reflects a growing push among executives to see a return on their AI spending. On earnings calls, mentions of ROI and AI investments are increasing, according to an analysis by AlphaSense, reflecting heightened interest from analysts and investors that companies make good on the millions they are pouring into AI.
Many executives hope that software coding assistants and armies of digital agents will keep improving—even if the current results still at times leave something to be desired.
The widespread caution in hiring now is frustrating job seekers and leading many employees within organizations to feel stuck in place, unable to ascend or take on new roles, workers and bosses say.
Inside many large companies, HR chiefs also say it is becoming increasingly difficult to predict just how many employees will be needed as technology takes on more of the work.
Some employers seem to think that fewer employees will actually improve operations.
Meta Platforms this past week said it is cutting 600 jobs in its AI division, a move some leaders hailed as a way to cut down on bureaucracy.
“By reducing the size of our team, fewer conversations will be required to make a decision, and each person will be more load-bearing and have more scope and impact,” Alexandr Wang , Meta’s chief AI officer, wrote in a memo to staff seen by The Wall Street Journal.
Though layoffs haven’t been widespread through the economy, some companies are making cuts. Target on Thursday said it would cut about 1,000 corporate employees, and close another 800 open positions, totaling around 8% of its corporate workforce. Michael Fiddelke , Target’s incoming CEO, said in a memo sent to staff that too “many layers and overlapping work have slowed decisions, making it harder to bring ideas to life.”
A range of other employers, from the electric-truck maker Rivian to cable and broadband provider Charter Communications , have announced their own staff cuts in recent weeks, too.
Operating with fewer people can still pose risks for companies by straining existing staffers or hurting efforts to develop future leaders, executives and economists say. “It’s a bit of a double-edged sword,” said Matthew Martin , senior U.S. economist at Oxford Economics. “You want to keep your head count costs down now—but you also have to have an eye on the future.”
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