A big hit to portfolios would be felt acutely by higher-income Americans, whose spending has recently been the biggest driver of the economy.
This time, maybe the stock market is the economy.
Financial markets around the world have plummeted in the days since President Trump announced sweeping tariffs, setting off a global trade war. The S&P 500 declined more than 10 percent in two days last week, and it swung wildly on Monday amid news of further tariffs and rumors of delays. Stock indexes in Asia and Europe have fallen sharply as well.
Experts often caution that the stock market can be a misleading measure of the broader economy. Share prices can move for a host of reasons — technological developments, shifts in consumer preferences, changes in tax or interest rate policy.
Sometimes, though, the markets carry an economic message — and in recent days, they have been speaking unusually clearly. Investors overwhelmingly believe that Mr. Trump’s tariffs, and retaliation from U.S. trading partners, will lead to higher prices, slower growth and possibly a global recession.
Plunging stock prices may not just reflect fears of a recession. They may also help cause one, as consumers pull back spending in response to their portfolios’ evaporating value.
A few days of turmoil might not matter much, said Ryan Sweet, chief U.S. economist at Oxford Economics, a forecasting firm, “but if the drop in the stock market persists for a few weeks, a couple months, the economic costs begin to quickly mount.”
The direct effects of tariffs will fall hardest on low- and moderate-income consumers, who tend to spend more of their money on food, clothing and other goods subject to duties, and who have less savings to insulate them from higher prices. But market declines will be felt most acutely by higher earners, who own a disproportionate share of stocks and other investments.