The customs duties, one of the first executive orders signed by US President Donald Trump after he took office, continue to fuel risk aversion among investors.

The market has lost $4 trillion since February, when the S&P 500 last peaked due to fears of a possible recession in the US economy.

In fact, all of the largest US companies in terms of market value have lost more than 4%. Among the Magnificent Seven stocks, consisting of Apple, Microsoft, Nvidia, Meta, Amazon, Alphabet and Tesla, the biggest drop was seen in Tesla, which closed down 15%.

This wave of anxiety has been further strengthened since January, when Trump's trade war with major trading partners such as Canada, China and Mexico increased uncertainty among investors, consumers and companies.

We need to go back a little to understand the reasons for this outlook in the market.

Although customs duties are seen as the main source of concern behind the current decline, trade wars have been priced in since December. During this period, the S&P 500 broke records more than once.

However, since February 20, the S&P 500's losses have approached $5 trillion. This means that approximately $350 billion has been wiped out of the market every day for 13 days. The Nasdaq is only 8% away from entering a bear market since 2022.

Although trade war concerns seem to be behind the red outlook in the market, the real reason is the sharp change in risk appetite in the markets.

So much so that, long before this view in the market pricing, which has shifted from Extreme Greed to Extreme Fear since the end of February, institutional money began to leave the markets. Hedge funds' Magnificent Seven investments reached their lowest level in the last 22 months towards 2025.

The movements in Bitcoin, whose correlation with the S&P 500 has strengthened recently, also underscore the change in risk appetite.

Despite a series of catalysts such as Trump being elected president in November as a crypto-friendly candidate, Trump launching a memecoin named after himself days before the inauguration, Gary Gensler resigning from the SEC, and the US’s approval of the strategic crypto reserve, all developments in the crypto markets have led to “sell the news” moves. Crypto markets have lost $1 trillion since Bitcoin’s peak of $109,000.

In addition to the inflationary pressures of customs duties, Trump’s statements about the US economy were the final driving force behind the sell-off in the markets.

Trump, who did not completely deny the possibility of the US entering a recession this year, reiterated his statements that the economy is “in a process of transformation.” The US President acknowledged that the customs duties he announced following the Atlanta Fed’s report warning of a possible economic contraction could affect US growth.

Speaking to Fox News, Trump said whether fears of a recession were a serious concern, “I don’t like to predict these kinds of things. This is a process of transformation because we are doing something very big. “We are making America rich again. This is a big thing. This is taking time.”

JPMorgan’s U.S. Market Intelligence unit noted last week that the U.S. economy is entering “another period of uncertainty” due to the unpredictable nature of the tariffs. Analysts said they were “bearish” on U.S. stocks, expecting markets to see more volatility and a potential “collapse” in U.S. growth.

Citi analysts, in line with JPMorgan, also updated their “HIGH PORTFOLIO WEIGHT” rating on U.S. stocks to “NEUTRAL.”

Dirk Willer, Citi’s head of global macro, asset allocation and emerging markets strategy, said two recent price signals contributed to the rating change: the S&P 500 falling below its 200-day moving average and the weak performance of leading stocks.

“Looking at the bigger picture, U.S. stock outperformance could return as the AI ​​narrative returns, but we expect U.S. growth momentum to remain below (the rest of the world) in the coming months,” Willer said.

Markets have adjusted their expectations for interest rates following recent economic indicators, with the path to the Fed’s 2% target looking bumpier than previously thought.

Markets are pricing in a total of three rate cuts in 2025, according to CME FedWatch, with the first cut expected in June.

“February employment data suggested some softening even before federal hiring. We continue to expect the chilling effects of reduced immigration, federal job losses and uncertainty around tax policy to significantly slow hiring in the coming months, so the Fed will likely face threats on both sides of its dual mandate,” Julia Coronado, president of MacroPolicy Perspectives, said in a note.