Have you been watching the stock market lately and wondering if this rally can last? Or worse—are we heading straight toward a crash?
Here what’s happening right now, and why a forecasting model from the Federal Reserve is sounding alarms not seen since the Great Recession.
Why Did the Stock Market Surge in Early 2025?
Before February 19, stock market performance was off the charts. The Dow Jones, S&P 500, and Nasdaq all hit record highs—classic examples of how indices investing can reflect broader market confidence. So what was fueling this momentum?
Here’s a quick look at the main drivers behind the bullish sentiment:
- Ongoing excitement around artificial intelligence (AI)
- Big stock splits from well-known companies
- Steady economic growth in the U.S.
- Falling inflation from its 2022 peak of 9.1%
- Active corporate stock buybacks
- Political developments, especially Donald Trump’s return to the 2025 presidential race
Many investors still remember how markets surged during Trump’s first term, thanks to his focus on tax cuts and deregulation. Some are hoping for a repeat.
But now, one economic tool is pointing in a very different direction.
What Is the Fed’s GDPNow Model—and Why Should You Care?
You might not have heard of it, but the GDPNow model from the Federal Reserve Bank of Atlanta is a tool worth watching. It tracks real-time economic data to estimate U.S. gross domestic product (GDP) growth each quarter.
Even though it’s not perfect, this tool has built a strong track record over the past decade. According to the Fed, its average forecasting error is just 0.77 percentage points.
Earlier this year, the GDPNow model was showing strong growth expectations. In late January, it projected the U.S. economy would grow by 3.9% in Q1 2025. That looked like a healthy sign.
But by April 1, the estimate had turned completely around.
Now, the GDPNow model predicts a 3.7% contraction in the first quarter. That’s a massive reversal—and if you exclude the pandemic years, this would be the biggest economic decline since the first quarter of 2009 during the Great Recession.
So what’s going on?
Is a Stock Market Crash Really Possible?
That’s the question on everyone’s mind: If the economy is shrinking, could the stock market crash soon?
Let’s look at what might trigger a downturn:
First, new tariffs announced by Donald Trump on April 2 have raised fresh concerns. Dubbed “Liberation Day,” his plan introduces global and reciprocal tariffs that could lead to higher prices for American consumers and retaliatory tariffs from other countries.
This isn’t just speculation. A study by New York Fed economists found that public companies directly affected by Trump’s tariffs between 2018 and 2019 underperformed their peers. They also reported declines in profit, sales, employment, and productivity between 2019 and 2021.
Another concern is that the market might simply be overvalued.
Is the Stock Market Too Expensive Right Now?
Here’s something you might not know: the Shiller P/E ratio—a measure that looks at stock valuations over the past 10 years—is currently at one of its highest levels in more than a century.
In December, it reached 38.89, higher than any point in this bull market. Historically, it’s only been higher twice: right before the dot-com bubble burst in 2000, and briefly at the start of 2022.
Since 1871, the Shiller P/E has crossed 30 just six times, including now. In every past case, the stock market eventually fell by 20% or more.
Does this mean a crash is guaranteed? No. But it does suggest the market might be priced for perfection—and vulnerable to bad news.
Should You Be Worried—or Ready?
If you’re feeling anxious, you’re not alone. Market downturns can be stressful, especially if you’re new to investing. But here’s a perspective that might help you stay calm.
Every 20-year period since 1900 has delivered positive total returns for S&P 500 investors—even through wars, recessions, and crises.
That’s 106 separate 20-year periods. All of them ended in gains. Some were modest (around 5% annually), but many delivered strong returns between 9% and 17% per year.
So, what’s the key takeaway?
If the economy slows and stocks pull back, it might not be a reason to panic—it could be a chance to invest at a discount.
History shows that bear markets and even full crashes don’t last forever. Investors who stay consistent, avoid emotional decisions, and focus on long-term goals tend to come out ahead.
So instead of asking, “Is this the end?” maybe ask, “Am I prepared to make the most of the next opportunity?”
