Market update: US stocks extend losses in 2025

In 2023, the Dow Jones gained 13.7% and then followed with a 12.9% jump in 2024. The benchmark S&P500 rose by 24.2% and 23.3% respectively, while the star of the show was the Nasdaq, which added 43.4% and then 28.6%.

The Federal Reserve were apparently getting a handle on inflation and, while interest rates remained at relative recent highs, the underlying economy was showing few signs of pressure.

• Invest with ii: Buy US Stocks from UK | Most-traded US Stocks | Cashback Offers

The election of Donald Trump then led to another leg-up, with hopes for a lessening of regulation, an easing fiscal backdrop and given previous experiences, a particular focus on growth.

Since inauguration, the picture is looking rather different and fears for a recession in the world’s largest economy are growing. The President has not rebuffed the suggestion, pointing to the fact that the economy is in a “period of transition” which has been the result of aggressive tariffs which could yet lead to a protracted trade war.

Recession is certainly not guaranteed, but investors should perhaps be prepared.

As a general rule of thumb, recessions are not good news for any parts of the economy. There will be some small exceptions, traditionally in areas such as the supermarkets and utilities (we all have to eat and heat), but in reality even these defensive shares will also fall, just not as much as the wider economy and market.

The US has seen a recent run of weakening economic data, quite apart from any inflationary and concessionary fears that investors are harbouring following President Trump’s aggressive tariff actions so far.

This has left each of the main indices in a difficult place, with the Dow Jones currently down by 0.3% in the year to date, the benchmark S&P500 down by 3.3% and the tech-heavy Nasdaq Composite index 7.7% lower. Both the S&P and Nasdaq are trading at a six-month low after dropping 1.7% and 2.7% respectively early in Monday's session.

The marked drop in the tech space follows not only the arrival of DeepSeek in the AI space (with a high possibility that others will emerge), but also that growth stocks such as these tend to suffer more in an elevated interest rate environment, with the “higher for longer” narrative working against them.

• Why you should keep a close eye on the ‘Mar-a-Lago accord’
• Pressure grows as Nvidia raises the bar again
• Stockwatch: is talk of recession overly pessimistic or fair?

The market is a discounting mechanism, in other words it looks to anticipate which sectors are likely to suffer. There has already been some weakness across the banking and retail sectors on recessionary fears, while the tariff moves have hit large importers such as Ford Motor Co (NYSE:F) and General Motors Co (NYSE:GM). In addition, smaller companies (lower prospects and higher borrowing rates) have also been in the firing line, and in the absence of any conciliatory US announcements, there could be more to follow.

In such times, investors seek alternative haven destinations, which may explain why the FTSE100 is currently ahead by 5.6% in the year to date, given its perceived defensive qualities and being represented by a raft of stable, cash generating businesses.

For the US, while sentiment can turn on a sixpence, the only guarantee for the moment is volatility and investors are bracing for a rough ride.