5 reasons to be worried about the market today

From the Fed to fiscal imbalance, there are plenty of things that could go wrong in markets today. Photo by ANGELA WEISS/AFP via Getty Images

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In my most recent column, I highlighted our firm’s perspective on how markets are at new highs and that is not necessarily a bad thing. Well, we were right, at least for two weeks, as markets have continued to march higher since that column was posted. 5i Research has, in the past, been accused of being “perpetually bullish” and we might agree with this a bit. After all, markets have steadily climbed higher for, oh, the past 100 years, and it has paid off for investors, so far, to be optimistic rather than pessimists. Still, in order to present a balanced picture, we present to you five reasons today to be worried about the market. Don’t shoot the messenger.

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U.S. fiscal imbalances and government debt

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We will start with the big one, as this is the one that would keep us up at night the most. There has been worry about government debt for decades, but the recent budget bill in the U.S. has taken this worry to peak levels. The U.S. federal budget deficit is now projected at US$1.9 trillion in 2025 (about six per cent of GDP), far above historic norms. Excessive government spending, without clear plans for reduction, could force higher Treasury yields, increase the cost of borrowing for the government and corporations and threaten confidence in U.S. financial markets. Higher fixed-income rates could see money flow from the market to savings accounts and GICs. Higher rates could lower corporate earnings. Yes, government spending can also provide a stimulus, but at some point, the piper needs to be paid. Countries cannot simply borrow trillions for all eternity.

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Persistent high inflation

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Remember the stock market in 2022? Was that fun? (Answer: No; the S&P 500 fell 18 per cent). Investors can’t stand inflation. When inflation surged in 2022, panic set in. U.S. inflation currently sits at 2.7 per cent, still remaining above the Federal Reserve’s two per cent target. This higher inflation has direct effects on interest rates, increases borrowing costs, pinches consumer spending and limits the Federal Reserve’s ability to lower rates (despite U.S. President Donald Trump’s wishes), all of which suppress market momentum and can lead to heightened market volatility. The market is in party mode now, but all it would take for a serious setback is four per cent inflation to scare off investors.

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Rising geopolitical and trade tensions

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Ongoing global conflicts (notably the Russia-Ukraine war), and fresh U.S. tariff threats and implementations — especially those targeting China, Mexico, our country and Russia — are deepening trade uncertainty. These actions risk triggering further inflation and retaliation from trade partners, undermining corporate profitability and global market stability. We have talked about this before, but it is the uncertainty that worries investors. Trump has made many conflicting announcements about tariffs on different countries. Investors have so far — after the April slump, at least — largely ignored the tariff wars, believing in TACO (Trump Always Chickens Out), the idea that Trump has a pattern of walking back his threats. But tariffs have a real, and negative, economic impact and investors may realize it later this year. Then the market party could end, or at minimum slow down.

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Economic slowdown and recession risk

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There are increasing signals of U.S. economic deceleration, including decreased job openings, drops in consumer confidence, a drag in business activity (especially in the services sector) and rising consumer debt levels in credit cards, auto loans, and mortgages. Mounting evidence suggests a potential recession in the third or fourth quarter of 2025, which would weigh heavily on stocks. Of course, economists have been predicting a recession for more than three years now and the actual resiliency of the economy has been impressive, helping support stock market gains. But recessions are part of a normal business cycle, and cannot be held off forever. At some point, for some reason, the economy is going to slow and perhaps move into negative territory, and this would certainly concern investors.