The Blubber

The sharpest U.S. stock market selloff since the height of the COVID-19 crisis has left equities looking relatively inexpensive. But if a recession is looming—driven by a deepening global trade war triggered by President Donald Trump’s sweeping tariffs—what counts as "cheap" may be a moving target.

“What are you doing to me, Trump? We’re all flying blind here as recession risks climb,” said Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors, which currently holds a neutral stance on U.S. stocks.

Historically, in the run-up to recessions, the S&P 500’s trailing price-to-earnings ratio tends to fall to an average of 15.6, according to data from Sam Stovall, chief investment strategist at CFRA and a recognized authority on market history. Even after the recent drop, the S&P’s P/E ratio sits at 23—suggesting there may still be significant downside ahead.

Federal Reserve Chair Jerome Powell added to concerns Friday, warning that the economic fallout from Trump’s new tariff measures could be far worse than anticipated. The Fed now faces the tough challenge of balancing inflationary pressures and potential job losses, both of which could be exacerbated by the trade crackdown.

“Trump is going to leave us all disappointed, and he’s not going to be the one to fix this,” said Phillips. “Stocks will keep sliding until there’s meaningful intervention from the Fed or Congress—but we’re not betting on that anytime soon.”

Friday’s strong March jobs report may prove to be the “final act” of the so-called “Goldilocks economy,” said Michael Feroli, chief U.S. economist at JPMorgan Securities. He noted the data preceded the full economic blowback from the tariffs and warned the central bank is now unlikely to cut rates in May.

Signs of a slowdown are already emerging. The Atlanta Fed’s GDPNow tracker estimates a 2.8% contraction in real GDP for Q1, making the Trump administration’s longstanding goal of 3% annual growth increasingly unlikely. GDP has topped 2% in nine of the last ten quarters through the end of 2024.

If the U.S. slips into a recession, global economies will likely follow, undercutting corporate earnings potential from overseas markets. Analyst expectations for 2025 S&P 500 earnings growth have been steadily revised downward—from nearly 13% at the beginning of the year to just 9.4% now, per Bloomberg Intelligence.

Since World War II, recessions have accompanied nine bear markets, with the S&P 500 falling an average of 35%. That’s deeper than the 28% average decline in the five bear markets not linked to a recession, according to CFRA data.