Recession Fears Mount

Rates and equities plummet. Markets continued a broader risk-off theme today after weekend comments from President Trump rekindled concerns about tariffs and trade wars. Treasury yields declined 6-12 bps across a steepening curve, with most of the move occurring overnight before a gradual decline in US trading hours. The 2-year yield (3.88%) declined back below 4% while the 10-year yield slipped to 4.21%.  Meanwhile, big tech was hammered today, including a 3.81% decline in the Nasdaq 100 to 19,431, the largest intraday decline since 2022. Digital assets sold off as well, with Bitcoin back below $80k as investors rush to safer assets.

President Trump labels current flight to quality as a “transition” period. President Trump is not overly concerned about the potential for a US economic slowdown. He stated yesterday on Fox News that recent risk-off sentiment is “a period of transition, because what we’re doing is very big.” He also declined to forecast a recession, and his team appears confident that economic growth will be sustained by tax cuts and tariff revenue. Treasury Secretary Bessent offered similar comments last week, where he stated that there will be a “natural adjustment as we move away from public spending… there’s going to be a detox period” before long term gains are evident.

Consumer outlook weakens. The NY Fed’s Survey of Consumer Expectations, released today, showed that 1-year ahead inflation expectations climbed from 3.00% last month to 3.13% in February, as respondents saw faster price growth across various categories of essentials such as rent, food, energy and medical care. The report also showed a broad deterioration in consumer expectations for the future, echoing takeaways from other recently released gauges of consumer sentiment. 27.4% of respondents think their financial situation will be worse over the next year, the highest level in 15 months, and expectations for missing a minimum debt payment rose to 14.6%, the highest since April 2020. Outlooks on the labor market also weakened, with 39.4% of respondents expecting the unemployment rate to be higher in a year vs. 34% in January.