A significant change in Wall Street’s perspective regarding the state of the US economy and the current bull market run occurred at the same time as Monday’s market catastrophe.
“You’re seeing a complete upending in virtually every single consensus trade that was common at the beginning of the year, everything in stocks, in bonds, and in currencies,” Mohamed El-Erian, the president of Queens’ College, Cambridge, and the former CEO of PIMCO, told Yahoo Finance on Monday.
“We’ve had a complete upending of the conventional wisdom.”
Following two years in a row in which strategists chased the market higher as the US economy exceeded forecasts, the market was generally expected to increase above trend in 2025.
As economic growth projections continue to decline, strategists are debating whether or not their year-end goals for the S&P 500 were overly optimistic.
“We have seen the US equity market on a rocky path higher through year-end, and have believed that our 6,600 can absorb a 5-10% drawdown,” RBC Capital Markets head of US equity strategy Lori Calvasina wrote in a note to investors on Sunday.
However, it must be acknowledged that the dangers of a drawdown of more than 10% have increased. We predict a “growth scare” of a 14–20% drop from the top if that happens, which may put us in our bear case.
Economic forecasting firms like Morgan Stanley, Goldman Sachs, and others have lowered their 2025 GDP expectations in recent weeks; Goldman now projects 1.7% growth in 2025, while Morgan Stanley now projects 1.5%.
“A transitional period”
Nor is Wall Street’s prediction of the economy’s potential course this year at odds with the political consensus.
It could be a contributing factor to the recent annoyance of investors.
President Trump told Congress this week that his tariff measures would cause “a little disturbance” to the economy, but he also said, “We’re OK with that.” There won’t be much.
“There is a period of transition because what we’re doing is very big,” Trump stated in an interview with Fox Business on Sunday. We are returning riches to the United States. That’s significant. It takes some time, but I believe it will benefit us greatly.
