Big bank stocks including Goldman Sachs (GS), Citigroup (C), Bank of America (BAC) and JPMorgan Chase (JPM) were among the big fallers on Wall Street on Monday as investors dumped stocks exposed to the U.S. economy. Shares in all four banks fell more than 2% in early trading, while Wells Fargo (WFC) declined over 3% as selling pressure continued over from last week’s drop for the major indices to push the Dow Jones industrial average down a further 300 points.
Cyclical stocks like banks were hit as fears grow about the risk of a recession, with markets whipsawing on a mix of fears about tariffs and inflation. Asked about the possibility of recession in the US this year, President Donald Trump told Fox in an interview that aired on Sunday that the economy is in “a period of transition.” Banks benefit from the credit expansion associated with a growing economy and are exposed to downturns from reduce loan origination trends and higher defaults as consumers struggle to meet payments.
Trump Says to Wait
Asked by Fox News about the Atlanta Fed’s prediction of a contraction in the first quarter and the chance of a recession this year, Trump said, “I hate to predict things like that. There is a period of transition because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing.”
The S&P 500 fell over 3% last week, its worst weekly loss since September. Tariffs seem to be undoing any that’s left of the Trump bounce – the market last week fell back below where it was just before the election in November. The Nasdaq Composite finished 10% below its December record high, confirming it’s been in correction mode for some time. It plunged a further 500 points on Monday while the VIX – Wall Street’s fear gauge – jumped to its highest since the December spike.
After imposing then abruptly pausing 25% tariffs on Mexico and Canada, sending markets lower last week, Trump used the interview to reiterate that “reciprocal” tariffs with other nations would go ahead from April 2nd. “What they charge us, we charge them,” he explained.
Meanwhile, Treasury Secretary Scott Bessent said it was possible the strong U.S. economy inherited by the Trump administration may start to “roll a bit.”
While investor mood seems fragile, consumer sentiment is also showing signs of weakness. The New York Fed survey of consumer expectations is due out today, which goes with the University of Michigan consumer sentiment report on Friday. Last time this was released it showed consumer sentiment plunging 10% to its lowest since November 2023 and inflation expectations rising to a 30-year high.
Inflation Data Ahead
The next big test is US inflation data due this week. In January it ticked up to a 6-month high of 3.0%. And consumers are expecting more inflation to come, with the last UoM survey showing 5-year inflation expectations at a 30-year high. Consumer price index inflation data is scheduled for Wednesday, while producer price inflation is due on Thursday.
The risk of higher inflation, and therefore the Federal Reserve keeping interest rates higher for longer, is one of the factors weighing on sentiment. The last Conference Board report also showed average 12-month inflation expectations surging from 5.2% to 6% in February, largely it seems on the risk of tariffs.
Earnings calls have featured tariffs heavily, with retailers like Target (TGT) and Walmart (WMT) among those to flag potential softness in the consumer.
Meanwhile, there were some worrying signs about the state of the US economy on the labour market front last week. Nonfarm payrolls increased by a seasonally adjusted 151,000 on the month, less than the 170,000 forecast, the Labor Department’s Bureau of Labor Statistics reported Friday. The figure was up slightly on the 125,000 in January, which was revised down from the initial reading of 143,000. The unemployment rate edged up to 4.1% from 4.0% the month before.
The Challenger jobs report showed U.S. employers announced 172,017 layoffs in February, up 245% from January and the highest monthly figure since July 2020, during the peak of the pandemic. More than one-third of the total came from Elon Musk’s DOGE cull of federal employees, while retail and tech firms were also laying people off.
Indeed, in addition to tariffs there are concerns that efforts to slash government spending will have a negative impact on the economy. Treasury Secretary Bessent said, “The market and the economy have just become hooked. We’ve become addicted to this government spending, and there’s going to be a detox period.“
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