Market Blues Drag on Wall Street, but it isn't Recession Moment Yet

US markets might have witnessed strong momentum in the past few weeks, but analysts continue to take a cautious turn owing to policy uncertainty. While the US administration implemented several steps to ease trade war tensions, with the 90-day-tariff pause one of the key moves, uncertainty continues to threaten the overall outlook. However, the chances of recession seem unlikely as per analysts.

"Investors and corporates continue to face elevated policy uncertainty and rotate into more defensive markets, sectors and currencies. Short-term USD and US equity market weakness will likely linger, but a US recession is not our base case (although the risk is higher)," HSBC stated in its latest monthly report.

Recently, the US Bureau of Economic Analysis reported that the US GDP growth contracted by 0.3% in the very quarter of 2025. Following the data release, the US president claimed that the GDP slowdown was not owing to tariffs but a weak economy left by Biden.

"This is Biden’s Stock Market, not Trump’s. I didn’t take over until January 20th. Tariffs will soon start kicking in, and companies are starting to move into the USA in record numbers," the US president said in a social media post.

It is worth mentioning that the US markets witnessed a sharp downturn after Trump's April 2 tariff announcement and remained in red for a few weeks until the administration announced some relief measures on the tariff front. This included a 90-day tariff pause and prospective hints that the US might strike a trade deal with China.

Pain Might Continue

Last month alone, the S&P 500 index surged over 600 points or 12.3% as positive investor sentiment bounced back on Wall Street. The Dow Jones Industrial Average index followed suit and jumped more than 3,300 points during the same period.

Although the 90-day tariff reprieve and the exemption of certain electronics have provided some temporary positive impact on sentiment, US companies still face rising tariff-related costs on almost all of their imported goods, which hurt their margins, as per the report.

"We think Q1 consensus earnings forecasts will fall further. However, we remain of the view that economic weakness should be short-lived and a US recession is not our base scenario...For now, we will continue to see investors rotate into more defensive markets, sectors and currencies," the report added.