President Trump’s economic policies have sparked fears of a looming recession and triggered a significant drop in the stock market. The S&P 500 recently experienced a correction, reflecting investor concerns over these policies. With the 2026 midterm elections approaching, a deteriorating economic mood could pose political risks for Trump.
Trump might be repeating a mistake similar to former President Biden, who faced criticism for not adequately addressing inflation concerns during his tenure. Voters perceived a disconnect between the administration’s optimistic messages and the reality of dwindling affordability, contributing to the Democrats’ losses in recent elections. In the first few months of Trump’s term, the stock market has declined, consumer and business sentiment has plunged, and anxiety over a potential recession is mounting.
However, the administration has been accused of downplaying these issues. Treasury Secretary Scott Bessent has described stock market corrections as “healthy,” advocating for resilience amid market volatility. Despite this, Trump’s insistence on the positive impacts of his policies contrasts with the growing unease in the market and consumers.
A sustained decline in the stock market could severely affect the broader economy if there is no recovery. Mark Zandi, chief economist at Moody’s, noted that while inflation was a primary concern during Biden’s term, it did not have the same immediate economic impact as the current stock market volatility. The economy depends on consumers continuing to spend, particularly the well-to-do,” Zandi said.
Looming recession impacts elections
If the stock market shows a lot of red, people don’t feel good, and at some point, they’ll pull back on their spending, potentially triggering a broader economic downturn.”
Wall Street has taken notice. RBC strategist Lori Calvasina lowered her year-end S&P 500 price target, citing weakening investor sentiment.
Ed Yardeni reduced his price target due to heightened economic uncertainty. Goldman Sachs increased its recession probability forecast, emphasizing the risk posed by proposed tariffs. Mounting data indicates that both consumers and businesses are under pressure.
More households report financial insecurity, and public companies are increasingly citing policy uncertainty. The upcoming deadline of April 2, when Trump may implement reciprocal tariffs, is a major concern for investors. “If these tariffs are enacted, the tariff rate would surge to levels not seen since the 1930s,” Zandi said.
“A large number of trading partners retaliating could drive the economy into recession.”
However, there is potential for a deal to avoid a trade war, giving Trump a chance to address market uncertainty. “If push comes to shove, he’ll pivot,” Zandi added. “But each passing day makes that pivot less certain.”
The real risk for Trump is potential rejection at the polls, similar to the Democrats’ fate last year.
Yardeni suggested that Trump may avoid a recession to prevent Republicans from losing their congressional majorities in the 2026 midterm elections. “It’s dangerous to ignore these darkening vibes, both economically and politically,” Zandi concluded.
