Here's the Rewritten Article:
Current State of the Market: Tariffs and Economic Risks
U.S. Recession Not Reflected in Stock Prices, According to Deutsche Bank's Assessment
It appears we're in a hold-our-breath situation,*. Economists aren't seeing a U.S. recession in the stars, yet, but the risk has certainly crept up a notch or two, thanks to tariff shenanigans. In the grand gamble of economic games, stocks, bonds, and oil markets are still hanging tough, surviving the volatile dance with tariffs better than they did in past recessions, according to Deutsche Bank analyst Henry Allen.
So, markets haven't panicked just yet and see a recession as far from a done deal, especially if Trump backed off his tariff threats. In Allen's words, "Markets clearly don't see a recession as inevitable, particularly if the tariffs don't come into play after the latest extension".
Knowing the unpredictable dance of the stock market, when it dipped after Trump's "Liberation Day" tariff announcement, it wasn't as bad as it gets—only up to 18.9% drop. Sharp, yes, but not as severe as the decline before five of America's recent recessions.
On the credit spread front, it's widened, but nowhere near the levels seen during the COVID-19 and global financial crisis. High yield spreads were at 397 basis points (bps) as of Wednesday morning, vastly below those recorded during the financial slip-ups we've witnessed. Even oil prices haven't plummeted as dramatically.
However, resilience has its drawbacks, my friends. With the market not acknowledging the recession potential, it opens the door to significant risks if a recession does happen. Allen warns that markets not fully considering a recession could lead to a collapse if one does occur.
Recession risks might take a tumble with improved U.S.-China relations, which seemed like a realistic possibility after Trump hinted at lower Chinese tariffs than the current 145%. The Wall Street Journal reported officials are contemplating a dramatic slash to the tariff rate on Chinese imports, settling between 50% and 65%.
Stock markets have rallied on the hope of de-escalation, but some economists caution that reduced tariffs still pose a risk of slowing things down. Trump's beloved ChaCha changes, when it comes to trade, can be unpredictable, leaving economists guessing if this Bull in China will last.
Keep your eyes on the hard data released in the coming days, advises Allen. Investors have been reluctant to fully accept a recession possibility because we don't have enough evidence pointing to a likely recession. However, if a recession signs start to pile up, as in a negative employment report, it would trigger a reevaluation that could lead to another round of panic selling.
*Historically, recessions have resulted from various and complex causes, and it is crucial to understand that Tariffs are only one factor to consider in assessing the risk of a recession. However, for the purpose of this article, we'll focus on the impact of tariffs on the economy.
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