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Prelude to a recession?

Markets are showing all the hallmarks of a slowdown except the panic. 

The S&P 500 remains about 8% off its February 19 high, while the Nasdaq is down 11% over the same stretch. What’s unclear is whether the recent decline marks a textbook correction or the beginnings of a deeper economic shock. 

Lately, stocks have traded as if the economy is about to cool off, rather than tip into a full-blown recession. 

The S&P 500’s forward P/E ratio has come down, suggesting investors are less willing to pay for future earnings. Yet, as strategists at Yardeni Research highlighted in a note early Monday, forward earnings themselves are still climbing. 

That disconnect — cheaper multiples but steady earnings forecasts — implies that analysts don’t yet agree with the market’s growing concern.

Corrections become bear markets when those concerns cement as reality, and earnings estimates start cascading lower. 

That hasn’t happened yet, but the foreshadowing is there.

Certain economically-sensitive corners of the market are flashing warnings. The small-cap S&P 600 has declined 16% from recent highs, and the mid-cap S&P 400 is off 13%. 

“Both [indexes] peaked within three weeks after the election,” said veteran economist David Rosenberg. “The honeymoon ended very quickly.” 

Retail companies are also sounding the alarm. FedEx just slashed its full-year outlook for its third consecutive quarter, while Nike warned of shrinking margins, declining sales and tariff-related uncertainty. 

Both stocks tanked Friday, and neither management team expressed much optimism about the near term. 

Meanwhile, markets more broadly seem to be positioning for a slowdown in consumer spending. 

“The S&P 500 basket of stocks for consumer discretionary companies has declined significantly in recent weeks,” wrote Apollo chief economist Torsten Slok in a note.

In his view, this suggests investors are growing concerned about how Americans will cut back on spending for big-ticket items like cars, phones, and washing machines. 

The recent weak retail sales data appear to support that view, and the Atlanta Fed’s GDPNow tool is forecasting negative growth for the first quarter. 

Fed Chairman Jerome Powell, for his part, soothed markets from the podium last week but he remains as cautious as investors. 

In his post-meeting press conference on Wednesday, he uttered the word “uncertainty” 16 times in total, the most since September 2019, as the chart below from Rosenberg Research illustrates. 

Even as the Fed raised its inflation forecast and trimmed its growth outlook, Powell reiterated his call for patience. His team still sees two rate cuts for 2025.  

But with data softening and market jitters fraying, investors aren’t so sure. And neither, apparently, is President Trump, who called out the Fed once again last week for not lowering interest rates.

“The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy,” Trump wrote in a social post. “Do the right thing. April 2nd is Liberation Day in America!!!”

If the economy is simply cooling off, markets already reflect that.

But if the economy is rolling over into something worse, the recent correction may look quaint in the rearview mirror.

Investors can live with uncertainty. It’s being wrong about what comes next that they just can’t stomach. 

Market snapshot:

Elsewhere:

💵 Traders suddenly bet big on a weaker US dollar. Speculative currency players have turned bearish on the buck for the first time since Trump won the election. Hedge funds have amassed $932 million worth of positions that the dollar will weaken, a reversal from January when they held $34 billion in wagers on a stronger dollar. (Bloomberg)

🌍️Money is shifting away from US exceptionalism. Just two months after JPMorgan declared American exceptionalism the “broad and dominant” investing theme of 2025, everyday investors have diversified overseas. Instead of riding the wave of US outperformance, they are weighing the uncertainty of tariffs against the potential strength of European and Asian markets. (WSJ)

🧱 It’s nearly been one full year since launching Opening Bell Daily. I was profiled in a new article and podcast about why I quit my job at Business Insider to bet on independent media, what it’s like reporting on Wall Street, and my approach to writing. (Creator Spotlight)

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About me:

📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day, unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else. Feedback? Reply directly to this email, ping me on X @philrosenn, or write me phil@openingbellmedia.com.