The financial sector faced significant pressure amid growing recession concerns, with Morgan Stanley dropping 5%, Goldman Sachs falling 4.5%, and major commercial banks including JPMorgan, Citigroup, and Wells Fargo declining 4-5%.
Are We Headed for a Recession?
JPMorgan has raised its recession probability for this year to 60% from 40% as the trade dispute threatens to derail economic momentum. The Russell 2000 small-cap index has already entered bear market territory, down more than 20% from its recent high, typically an early indicator of broader economic stress. All major indexes are tracking for their worst weekly performance since September, with the Nasdaq and S&P 500 posting six negative weeks out of the last seven.
Economic Resilience Overshadowed by Trade Tensions
The March jobs report presented a mixed economic picture. Nonfarm payrolls increased by 228,000, substantially above the 140,000 forecast, while the unemployment rate ticked up slightly to 4.2% from 4.1%. However, this positive labor data has been overshadowed by escalating trade tensions, with markets clearly pricing in heightened recession risk despite the employment strength.
Trading Strategy: Brace for Weekend Headlines
Traders should closely monitor weekend developments for potential diplomatic breakthroughs or further escalation, as market sentiment appears highly vulnerable to trade headlines.
Protective options strategies and reduced leverage may prove prudent given the extreme volatility. With Trump declaring his “policies will never change” on social media, could we see institutional investors reposition portfolios more defensively across asset classes?