The Animal Spirits Index (ASI) in the United States slipped back into negative territory in March 2025, reaching -0.34, according to the latest report from Wells Fargo Economics. This marks the first time the index has fallen below zero since October 2023, signaling a shift in market and consumer sentiment following months of cautious optimism. The downturn highlights growing concerns around trade policy uncertainty and its broader impact on the U.S. economy.
The Animal Spirits Index is a measure created to quantify market sentiment, reflecting the emotions of confidence, hope, fear, and pessimism that influence financial decision-making. It combines various indicators, such as consumer confidence and stock performance, to assess the overall mood in the markets.
The report attributes the decline primarily to mounting tariff-related anxieties and overall market volatility. The ASI, a composite measure based on five indicators—the S&P 500 Index, the Conference Board’s Consumer Confidence Index, the yield curve, the VIX Index, and the Economic Policy Uncertainty Index—showed weakness across nearly all components in March. The only exception was the yield curve, which remained in positive territory. It should be noted that longer-term bonds have higher yields due to the increased risk over time, therefore a higher yield curve is not necessarily a positive indicator.
Analysts underline that equity market performance weighed heavily on the index. The S&P 500 Index, after a record-setting year in 2024, has struggled in early 2025, falling each month since its January peak. In March alone, the index dropped by 343 basis points, marking its sharpest monthly decline since 2022. At the same time, the VIX Index, a key measure of market volatility, climbed to its highest level since before the 2024 presidential election, further undermining investor confidence.
Consumer sentiment has also deteriorated. The Conference Board’s Consumer Confidence Index fell to 92.9 in March, its lowest reading since early 2021. The Expectations Index, a forward-looking subcomponent, has been particularly weak, reflecting consumer concerns over inflation and the uncertainty surrounding U.S. trade policy. Households are increasingly wary of their short-term financial prospects, a trend that could dampen consumer spending in the coming months.
Another major drag on the ASI has been the Economic Policy Uncertainty Index, which surged over 68 points in March to a post-pandemic high of 297. This rise coincided with heightened trade tensions, notably the implementation of new “reciprocal” tariffs on April 2. Although these tariffs have been temporarily paused for 90 days—with a 10 percent baseline rate replacing many country-specific levies—the outlook for a substantial easing of trade barriers remains unclear, according to Wells Fargo economists.
Looking ahead, elevated uncertainty surrounding trade negotiations is expected to keep the ASI in negative territory. The report forecasts that the U.S. will eventually strike trade deals during the 90-day window, but a significant reduction in tariff rates appears unlikely. In the meantime, the imposition of higher tariffs is anticipated to trigger a modest stagflationary shock, with inflation expected to rise, eroding real income growth and pushing real GDP growth into negative territory later this year.
As economic momentum weakens and the unemployment rate begins to edge higher, analysts expect the Federal Open Market Committee (FOMC) to respond by cutting the federal funds rate by 125 basis points between the June 2025 meeting and year-end. Despite previous hopes for a “soft landing,” recent developments suggest a bumpier road ahead for the U.S. economy, with consumer and business sentiment likely to remain cautious. For businesses and policymakers alike, the return of the Animal Spirits Index to negative territory serves as a warning signal. Companies may need to brace for shifts in consumer behavior and potential volatility in financial markets. Policymakers, meanwhile, will need to carefully manage trade negotiations and monetary policy to mitigate further economic fallout.
