The Breath of Recession: why did the American stock market collapse
The US stock market has experienced another "Black Monday", with the strongest collapse of major indexes since 2022. The shares of technology companies, which had previously been the main drivers of growth, suffered the most. One of the main reasons for the collapse was investors' worries about a possible recession in the United States. The probability of such an outcome is still from 20% to 40%, but it is constantly growing, according to analysts. There may be several reasons for the recession of the world's largest economy in 2025, but coupled with the difficult situation of other global leaders, the effect can become such that it will overwhelm the whole world. Details can be found in the Izvestia article.
The bears are coming back
On March 10, the largest decline in quotations on the American stock market over the past two and a half years took place — the last time this happened was in September 2022. The Dow Jones index, a composite of the stocks of America's 30 largest publicly traded corporations, fell by almost 900 points, or 2.08%. The broader S&P 500 index fell 2.7%. And the high-tech Nasdaq immediately dropped by 4%.
In the last month, an unpleasant situation has developed on the US stock exchanges. The total loss in market capitalization compared to the February peak was $4 trillion. The wealth of the richest Americans like Jeff Bezos and Elon Musk has collapsed by tens of billions of dollars. Although a bear market has not yet been officially announced, it could happen at any moment.
The recession taking place in the American markets is quite expected and is not some kind of "black swan". There are many reasons for this process. In particular, the Trump administration's policy on trade duties is called, which has undermined American business confidence in the future. Many companies are now forecasting a reduction in profits in the coming quarters, which inevitably affects the share price. However, this alone cannot explain the drop in quotations: after all, the stocks of technology organizations (Tesla, Amazon, Nvidia, etc.) are the shooters of the process, and they depend very moderately on import tariffs.
Another reason is the inevitable correction after a long period of large-scale growth. Although American companies are now making impressive profits, their valuation is objectively overestimated. The stock price to earnings ratio at its peak (P/E) was almost 25x, which is too much by historical standards. For comparison, the securities of EU companies are trading at 12x, while the Russian market is very cheap — about 4x. There are objective reasons for this difference, but even with them, American firms look overvalued.
Finally, the immediate reason for the collapse in recent days was the frankness of top US officials about the economic downturn in the country. For example, President Donald Trump dodged the question about the recession and, moreover, hinted at an affirmative answer, saying that the American economy would have to experience "some difficulties" in the near future for the sake of long-term gains. Tellingly, officials usually deny the possibility of implementing the "r-word" to the last, but this time everything is quite frank.
Long live the recession
Why is the United States facing a recession, even though no such assumptions were made a few months ago? First of all, we recall Trump's tariffs. They're much more appropriate here. For China, duties have already been increased twice by 10%. Starting in April, Mexico and Canada will receive 25% tariffs, and soon the queue may reach the European Union and the rest of the world. This means that the positions of foreign suppliers in the American market will weaken dramatically. But it will also be difficult for the Americans themselves, since most of their industry depends on foreign raw materials or parts in one way or another. For example, car manufacturers are facing heavy losses.
Another type of activity by the new Republican administration also increases the likelihood of a recession. To everyone's surprise, Trump has set the task of reducing budget spending with the help of the Department of Public Efficiency and other measures. This means that the fiscal stimulus that the American economy has been riding on in recent years will gradually wear off.
Indeed, the United States achieved good economic growth under Joe Biden — about 3% per year, but this was ensured by budget deficits exceeding 5-6% for several years in a row. In fact, the emergency policy of supporting the economy has become a daily norm. A serious attempt to fix this will quickly lead to a serious "breakdown".
The US anti-migrant program may cause no less problems for economic growth indicators. It's not so much a matter of reducing the workforce as it is of consumer activity. The U.S. population has been growing in recent years due to mass migration. The migrants, being overwhelmingly young people, spent everything they earned or received from the state, which stimulated the entire economy. Although most Americans benefited little from this, growth continued, and companies could make money from it.
Finally, the key point is the already mentioned calmness of Trump and his team regarding a possible recession. Treasury Secretary Scott Bessent, like Trump, believes that the recession could be a "detox" for the American economy. This is an impressive contrast to previous administrations, which were willing to spend any amount of money (not to mention verbal intervention) just to avoid a crisis.
The worse, the better
The American government's line of conduct looks surprising — but only at first glance. It has its own logic. Trump, Bessent and other representatives of the financial authorities apparently believe that a recession is inevitable anyway. So, it's better to push it and wait out the recession at the beginning of the electoral cycle. Moreover, it will be much easier to blame its causes on the previous administration (and there will also be a considerable amount of truth in this).
Finally, the collapse of markets and the downturn in the economy lead (which we are currently witnessing) to an increase in government bond prices (treasuries), that is, they facilitate the refinancing of American debt. And in this case, the White House wins. Accordingly, the task is only to make the economy manageable and prevent the recession from turning into a depression. Although in the current unstable situation, nothing can be guaranteed.
For the rest of the world, the American recession will be very bad news. The USA is the largest consumer on the planet. If their economies shrink in addition to the imposition of tariffs, it will be doubly difficult for countries focused on exporting to America.
In addition, the recession in America is superimposed on other difficulties in the world. China is facing deflation right now, meaning the post-pandemic recovery is stalling. Europe seems to have perked up after Germany's announcement of the possibility of adopting an infrastructure package worth up to €800 billion. But this generosity may cause unintended consequences in the form of a new European debt crisis — bond yields across the EU soared from just one statement by potential German Chancellor Friedrich Merz.
In such an environment, Russia will need to closely monitor commodity prices, which are almost certain to fall. The decline in demand will be a heavy burden for the Russian economy. Some compensation for this decline will be the intensification of deflationary processes in the rest of the world, which will inevitably be imported into the Russian Federation, weakening inflationary pressure.
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