Anything is possible in Trump World. We can't rule out the possibility that a bear market started on February 20, the day after the S&P 500 rose to a record high (chart). It could be like the "flash crashes" that occurred during 1962 and 1987. It could happen quickly and reverse just as quickly. So the selloff could provide buying opportunities, especially in overvalued names that are now less so.
For now, the problem is that the Trump administration's rapid-fire policy initiatives are stress-testing the economy, which has been remarkably resilient so far, and raising fears of a recession.
Trump officials have heightened those fears in recent days. Today, in an interview with Maria Bartiromo on Fox News, the President himself refused to rule out a recession this year and said that the economy is in "a period of transition." He also acknowledged that tariffs might fuel inflation. On Friday, US Treasury Secretary Scott Bessent said that the US economy may slow as it transitions away from public spending toward more private spending, calling it a "detox period" needed to reach a more sustainable equilibrium.
The administration's policies that are currently being implemented (federal job cuts and tariffs) increase the risk of a stagflationary outcome. We give that scenario a 35% subjective probability, which we raised from 20% last Wednesday. But the stock market seems to be signaling that stagflation is even more likely than we think given how quickly stock prices have dropped since February 19 (chart).
