From Yahoo Finance: 2025-05-06 23:07:00

Investors who bought the dip have seen gains as the S&P 500 and Nasdaq Composite rose since President Trump paused reciprocal tariffs. Concerns about the U.S. economy slowing and tariffs causing stagflation or recession remain. Veteran analyst Paul Tudor Jones shares a stock market forecast that investors shouldn’t ignore.

The Federal Reserve’s dual mandate aims at low inflation and unemployment, creating a challenging balance. The Fed’s monetary policy decisions impact the economy, with recent hikes leading to layoffs but slowing inflation. Fed Chairman Jerome Powell’s hawkish rate hikes have caused sky-high inflation, peaking at 8% in June 2022.

The Fed’s tightening to combat inflation has helped bring inflation below 3%, but at the cost of rising unemployment. Layoffs are increasing, with companies announcing the most layoffs in a first quarter since 2009. The job market’s weakening led to rate cuts, contributing to sticky inflation and forcing the Fed to wait for more data.

Reciprocal tariffs have disrupted the stock market, resetting growth outlooks. While President Trump paused some tariffs, others remain in effect, straining supply chains and confidence. The Conference Board’s Expectations Index dropped to its lowest level since 2011, signaling a possible recession. Consumer sentiment and inflation expectations are also declining.

Paul Tudor Jones, with a long Wall Street history, warns of potential stock market lows due to tariffs and Fed policies. Trump’s commitment to tariffs and the Fed’s reluctance to cut rates could lead to new lows. Trade deals may offer hope, but significant deals are needed to offset tariffs’ impact on growth.

Jones predicts a hit to GDP growth from tariffs could prompt Fed and Trump actions to support the market. If his outlook holds, new lows may trigger responses from both, potentially improving market conditions. Jones emphasizes the importance of hard data and the need for proactive measures.

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