Despite warnings from leading economists that tariffs could precipitate a downturn—with some forecasters assigning a high probability to a recession—stock markets have continued to rally.
The S&P 500 recently completed its longest winning streak since 2004, recovering much of the ground lost after the initial tariff announcements. This rebound reflects investor optimism driven by strong economic data and hopes that trade tensions will ease.
Economists, however, warn that tariffs—especially those targeting imports from China—could eventually produce stagflation, a mix of rising prices and slowing growth. While the immediate market reaction has been positive, the full economic effects of sustained tariffs may take time to surface.
Consumer surveys indicate rising concern about trade policy and the broader economy, yet actual spending remains relatively resilient. That divergence suggests that, for now, households are continuing to buy goods and services despite apprehensions, delaying any pronounced slowdown in demand.
In short, market strength reflects confidence in near-term economic fundamentals and expectations of easing trade disputes, but the risk remains that prolonged tariffs could reverse gains by feeding higher inflation and lower growth over time.