All across the world, as sell orders lit up screens on trading floors from Tokyo to London and New York, a sobering reality took hold: Donald Trump is serious about upending the global trading system — and it appears, at least for now, that fears of a stock-market crash won’t stop him.
The US is bearing the brunt of the selloff that raced through markets Thursday after Trump ushered in a raft of tariff hikes that will drive the nation’s levies to the highest in over a century — which threaten to upend supply chains, rekindle inflation and slow global economic growth.
Those fears caused the S&P 500 Index to slump as much as 4.5% and pushed the tech-heavy Nasdaq 100 down over 5%, wiping out some $3 trillion in combined stock-market value. Apple Inc., Nike Inc. and other companies dependent on overseas production sank.
Meantime, the dollar slid by the most in at least two decades as investors pulled cash out of the US, sending the euro, yen and Swiss franc surging. Oil fell on concern demand will drop. And Treasuries rallied — sending the 10-year yield briefly below 4% for the first time since Trump was elected — as investors fled for safety.
All told, it amounted to a rapid, collective verdict: Trump’s push to roll back decades of globalization is almost certain to wreak havoc on the global economy, and possibly even set off recessions if it triggers a retaliatory spiral.
“The uncertainty landscape just became a lot longer and a lot wider,” said Michael Purves of Tallbacken Capital Advisors. “Even in a best case scenario – let’s assume that yesterday’s opening salvo was simply an aggressive chess move – the depth and duration of uncertainty has just been substantially increased.”
The selloff shows how much sentiment has shifted just two months into Trump’s presidency. Traders initially bet that he would supercharge growth by cutting taxes and regulations, downplaying the tough talk on trade that he made during the election campaign. That helped send US stocks higher late last year, fueling one of the strongest bull runs since the 1990s internet boom.
But concerns started to build last month as he started pushing up tariffs, upending global alliances, and moving to aggressively slash federal spending and the size of the workforce.
On Wednesday, after markets closed, he announced his boldest move yet, a package of new levies on roughly 60 countries. It included steep hikes on countries like China — which now faces a tariff of well above 50% on many goods — as well as the European Union, Japan and Vietnam.
Unless bilateral negotiations reduce the proposed tariffs, they will likely roil businesses’ supply chains, squeeze corporate profits and rekindle inflation — potentially limiting the Federal Reserve’s ability to cut interest rates if the economy stalls.
As a result, some economists have started pushing back the timing of the next interest rate cut from the US central bank as the tariffs threaten to deliver another price shock — even as traders were pricing in more cuts on expectations that they’ll be a drag on the economy. Morgan Stanley’s economists, for example, had been expecting the next move in June. But after Trump’s announcement, they predicted the Fed will remain on hold until March.
Thursday’s slide left the US stock off to its worst start under a new president since George W. Bush in 2001, after the internet bubble burst.
“It’s definitely more aggressive than what people were expecting,” said Brad Bechtel, head of foreign exchange at Jefferies Financial Group Inc. in New York. “It’s a bigger doom loop for the rest of the world.”
Markets had been on edge about Trump’s planned April 2 announcement for weeks, frustrating Wall Street analysts who said the uncertainty was making it difficult to position for the impact. But what they got on Wednesday was a worst-case scenario: aggressive moves coupled with questions about the rationale used to set the new rates and whether they will remain or be negotiated downward.
Trump and his advisers have expressed confidence that their program will rejuevenate the US economy by bring back manufacturing jobs, downplaying any short-term side effects as a temporary adjustment. Trump indicated as much on Thursday morning, likening his tariff rollout to a risky but successful surgery in an all-capitalized post on social media.
But by threatening to increasing the cost of imports, Trump’s trade war has already dampened consumer confidence, threatening the spending that’s a main driver of the economy. It has also weighed on businesses as they weigh how to adapt — or whether to wait and see if the tariffs are ultimately a negotiating tactic for the administration to get better trade deals.
In the futures market, traders have stepped up bets that the Fed will cut rates several times this year, reviving the so-called Fed put — or belief that policymakers will step in with easier money policy if the stock market stumbles. They’re pricing in a roughly 50% chance of four quarter-point cuts before the year is over.
What Bloomberg Strategists Say:
“The higher-than-expected initial stated levels of ‘kind’ reciprocal tariffs on trading partners will keep uncertainty high and volatility levels elevated for some time. There are still many things that need to be determined, but the initial response to Trump’s tariff announcements indicates a more stagflationary outlook.”
— Michael Ball, Markets Live Macro Strategist
Even before the announcement, a bevy of Wall Street firms were growing increasingly pessimistic about the near-term outlook for US stocks.
Goldman Sachs Group Inc., Bank of America Corp. and others warned that the tariffs, no matter the specifics, would deepen the selloff in equities. Three of Wall Street’s most-reliably bullish sellside strategists have also cut forecasts for the S&P 500 this year, though they still saw the benchmark ending 2025 higher than it is now.
“What is clear and clean is that we have to fully price in the negative shock upfront,” said Ed Al-Hussainy, rates strategist at Columbia Threadneedle. “At end of the day, this is a tax — who will pay for the tax is uncertain – but I don’t think you can see this as growth positive in any way. It’s growth negative and inflation positive in the short term.”
Written by: Liz Capo McCormick, Carmen Reinicke, and Julien Ponthus — With assistance from Abhinav Ramnarayan, Vildana Hajric, Denitsa Tsekova, Ethan M Steinberg, Elena Popina, Vinicius Andrade, Richard Henderson, Aline Oyamada, and Levin Stamm @Bloomberg
The post “Market Selloff Accelerates as US Trade War Upends Global Outlook” first appeared on Bloomberg
