President Donald Trump‘s economic transition plan has been the center of discussion since he assumed office. Economist Craig Shapiro in his latest analysis has issued a stark warning that Trump's approach could trigger a 30-50% collapse in stocks and home prices, leading to severe economic turmoil.
What Happened: Sapiro, who is a macro strategist at the Bear Traps Report, criticized Trump's economic transition plan, which aims to move the country away from public deficit-driven growth toward a private sector-led expansion.
This transition was described as the “detox period,” by Treasury Secretary Scott Bessent last week on Friday, where he warned that the U.S. economy is overly dependent on government spending.
While this so-called “detox period,” is intended to reduce government spending and boost long-term economic health, Shapiro believes the process will be too abrupt, leading to devastating short-term consequences.
Shapiro broke down the administration’s economic transition in two phases and said, "The wealth destruction that is coming from this selling during Trump's Phase 1 of his transition plan… is going to come too quick and be too painful before we get the benefits from Phase 2.”
He added that this could lead to 30-50% correction in stocks and home prices, while the administration is “on the path to get there.”
Phase 2, as described by Trump's economic advisors, would focus on tax cuts, deregulation, and infrastructure investment. However, Shapiro warns that markets may not survive long enough to feel the benefits, especially given Trump's limited control over Congress and the Federal Reserve's reluctance to ease monetary policy.
Why It Matters: On Sunday, Trump acknowledged the potential of short-term turbulence and didn't rule out recession stemming from his economic agenda. In a Fox News interview, he said, “I hate to predict things like that” and called the changes being brought about by his administration as “very big.”
Similarly, on Thursday last week, Trump said, “I'm not even looking at the market, because long term the United States will be very strong with what is happening here,” while talking to the press at the Oval Office.
However, with foreign capital fleeing, ongoing market correction, and the Fed stance on rate cuts, Shapiro suggests the administration may be "threading the needle" in an extremely high-stakes economic gamble.
"I hope they are good at sewing," he quipped, underscoring the fragility of the current situation.
Price Action: The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, rose in premarket on Tuesday. The SPY was up 0.46% to $563.17, and the QQQ also advanced 0.63% to $475.73, according to Benzinga Pro data.
Meanwhile, Monday's sharp market downturn saw the Nasdaq 100 tumble 12.56% and the S&P 500 decline 8.67% from their recent peaks. While the Nasdaq 100 had already slipped into correction territory last week, the S&P 500 was on the verge of following suit.
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