In every corner of the financial markets, from stocks to bonds to commodities, investors sent Donald Trump the same unmistakable message: The trade war he unleashed is threatening to set off a worldwide recession — and fast.
With China retaliating less than 48 hours after the US president rolled out his punitive tariffs, traders are pricing in what increasingly looks like a negative-feedback loop as Trump shows little signs of backing down.
The frantic two-day selloff unleashed by Trump’s decision left little unscathed, hammering stock prices in Asia, Europe and the developing world, and prompted investors to race into havens like government bonds.
It hit the US hardest, worsening Friday after Federal Reserve Chair Jerome Powell said the trade-policy shift is likely to slow growth and spur inflation — a vexing combination that could prevent the central bank from cutting interest rates deeply enough to offset the toll.
As traders dialled back rate-cut bets, the S&P 500 Index tumbled 6%, capping the steepest two-day slide since the pandemic hit the US in March 2020 and wiping out some US$5 trillion of value. The tech-heavy Nasdaq 100 also posted a similar drop, leaving it down more than 20% from its mid-February peak.
But the impact extended well beyond the equity markets. Oil tumbled on speculation demand will slow. The cost to protect investment-grade debt against default surged by the most since the regional banking crisis of 2023. And government bonds rallied as investors rushed in.
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“We are rapidly headed towards recession,” said Peter Tchir, head of macro strategies at Academy Securities. “The world was prepared for ‘reciprocal tariffs.’ Whatever the abomination that was launched at the Rose Garden was, it is a disaster — mostly for the US, but also for the global economy.”
S&P 500's Biggest Two-Day Drop Since Pandemic | Index tumbles sharply Friday as selloff worsens
See also: Trump tariffs wipe out US$2 trillion from US stock market
US stocks started the week on a strong note, advancing on speculation that Trump’s long-awaited plan would not be as aggressive as he had indicated.
But those hopes were dashed on Wednesday when he rolled out tariffs on some 60 countries, including China and the European Union, marking a major pullback from the steady growth in cross-border trade that has powered the global economy for the last several decades. It also put him at odds with virtually every country in the world, raising the stakes for the US, which relies on investors abroad to help absorb an ever-rising supply of its debt.
Wall Street strategists and economists swiftly started revising their forecasts downward, anticipating a shock that could upend a US economy that has been surprisingly strong since the pandemic. Traders brushed aside the latest evidence — a Labor Department report that showed an unexpectedly jump in hiring last month — seeing it as irrelevant given that the outlook has shifted significantly in a matter of days.
There were few corners of the US stock market that were spared. Even small-cap stocks, once seen as likely to benefit from Trump’s protectionism, have been hit as concerns about a recession shift to the fore. Wall Street’s fear gauge — the CBOE Volatility Index or the VIX — spiked, ending the day at its highest level since 2020.
“When there is fear in the market, as the VIX is telling us, everything will sell off,” said Jay Woods, chief global strategist at Freedom Capital Markets. “It does feel like the sky is falling off. This is very different scenario right now because we are at the whim of Washington.”
Trump has downplayed the stock-market slide, saying it will reverse as the benefits of his policies kick in, and has shown little indication he intends to change course. On Friday morning, he reposted a video by a TikToker speculating that the rout was all part of a plan to redistribute wealth and drive down interest rates.
Later in the day, though, he showed some signs of concern by lashing out at Powell in a social media post, saying he should “stop playing politics” and cut interest rates immediately. Shares of companies that have large manufacturing operations in Vietnam, including Nike Inc. and Lululemon Athletica Inc., also jumped after Trump said Vietnam was willing to eliminate tariffs to avoid new US levies, fueling some optimism that particular rates may be negotiated downward.
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Otherwise, sanguine voices were hard to find. JPMorgan Chase & Co Chief Economist Bruce Kasman, for one, said he now sees a 60% chance that US tariffs will push the global economy into a recession this year. His note bore the title: “There will be blood.”
Faced with a potential dropoff in demand, the price of oil has tumbled over 13% in just two days to below $62 a barrel, echoing a move seen during the pandemic. The rapid movements also whipsawed currencies, with the dollar plunging sharply Thursday, then regaining some of its lost ground.
As the stock selloff continued Friday, investors piled into Treasuries, one of the few safe spaces. That drove the yields on two-year notes down as much as 22 basis points to 3.46%, the lowest since 2022. But even that market was whipsawed, erasing almost all of the drop after Powell’s comments drove traders to dial back some of their rate-cut bets.
“We had significant shocks to financial markets,” said Daniel Ivascyn, group chief investment officer at Pacific Investment Management Co. “Anytime you have these big moves this quickly, there tends to be pain.”
