US stock markets crash as recession odds jump to 74% on weak GDP numbers

US markets collapsed on Wednesday after fresh economic numbers showed GDP dropped 0.3% in the first quarter of 2025, raising the chances of a recession to 74%, based on investor sentiment and Wall Street models.

The Commerce Department released the figures, confirming that the economy shrank between January and March. That made it the first negative quarter since early 2022.

The contraction slammed into Donald Trump’s second term just as he kicked off his new wave of economic policies, especially his trade wars. This drop caught many on Wall Street off guard.

Forecasts from Dow Jones economists had predicted a 0.4% increase in GDP, expecting continued growth after the 2.4% gain in Q4 2024. But that confidence was shredded fast, once businesses and consumers started flooding imports to avoid Trump’s tariffs that took effect in April.

Imports slash GDP as businesses rush ahead of tariffs

The import surge was brutal. Imports climbed 41.3%, with goods alone jumping 50.9%, cutting over 5 percentage points off the GDP total. At the same time, exports only increased 1.8%. The net impact made the economy look far weaker than expected, even though some economists said it might bounce back later if imports ease.

Stock traders reacted hard. The Dow Jones Industrial Average fell 615 points—about 1.5%. The S&P 500 dropped 2%, and the Nasdaq Composite bled 2.6%. 

April closed in red, and this GDP print nailed the coffin on any last-minute rally hopes. The hit also landed as Trump tried to push forward new economic strategies, most of which now look like they’re throwing sand in the gears instead of oil.

On Truth Social, Trump posted that the slowdown was because of a “Biden ‘Overhang’” and told Americans to “BE PATIENT!!!” while claiming his economic plans would take time to deliver results.

But investors and businesses aren’t buying it just yet. Scott Helfstein, head of investment strategy at Global X, said the back-and-forth in Trump’s policies is a problem.

“The continual sequence of policy reversals has led to very high levels of uncertainty for businesses and investors,” Scott said. He called the GDP report “a canary in the coal mine for the new administration,” and said people may have underestimated the damage Trump’s long-game approach might cause in the short term.

Consumer spending slows, investment jumps, recession fears grow

Consumer spending didn’t crash, but it did slow sharply. Personal consumption expenditures rose 1.8%, which sounds okay until you realize that’s less than half the 4% jump in Q4 2024. That number is also the weakest since Q2 2023, so people are clearly tightening up.

Still, business investment exploded. Private domestic investment shot up 21.9%, and a big piece of that came from a 22.5% spike in equipment spending. Analysts say that’s likely due to businesses buying machines and gear early before tariffs push prices even higher.

On the other hand, the federal government pulled back. Spending fell 5.1%, which yanked about one-third of a percentage point out of the GDP number. That mix—weak consumers, heavy imports, falling government spending—is now driving up recession risk across every model on Wall Street.

At the center of it all is Trump’s trade policy mess. In early April, Trump slapped a 10% tariff on all trade partners, with added “reciprocal” tariffs targeting select countries. Then on April 9, he hit pause, giving a 90-day window to strike better deals. But so far, there’s no agreement, and insiders say talks are dragging. The uncertainty is wrecking confidence.

The idea that the worst is over isn’t convincing many. At Goldman Sachs, macro strategist Vickie Chang told clients that even though the market looks like it’s settling down, that might be the wrong signal. “In past equity corrections, markets tended to bottom near the trough in economic activity,” Vickie said.

She explained that if the market thinks the main problem has peaked, it might start to rise before the economy actually gets better. But she warned that this situation could still blow up. “We still think there is significant vulnerability in a recession scenario, even if the worst of the underlying ‘shock’ has passed,” Vickie added.

Skepticism is growing fast. Vickie pointed out that the S&P 500’s 19% drop this year doesn’t even come close to the kind of pain usually seen during a real recession. Since 1950, there have been five bigger crashes that didn’t even involve one. And in the last three recessions, the average market drop was a brutal 47%.

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