A broad-brush set of tariffs from President Trump has set off one of the most tumultuous periods for US financial markets since the pandemic, with the S&P 500 plummeting in every sector, the bond market in disarray, and the dollar dropping precipitously. Market heavyweights and experts are predicting an impending recession, while the White House has been compelled to backpedal partially by suspending some of the new tariffs, the Wall Street Journal reported.
Stocks drop across the board as tariffs strike global mood
Since April 2's announcement of sweeping new tariffs, the S&P 500 has seen wild fluctuations, with consecutive losses of more than 4% and all 11 sectors posting losses. The hardest hit has been the energy sector, down close to 16%, led by a precipitous drop in oil prices as concerns that a slowing global economy will strangle demand gripped the market. Real estate and financials also registered deep losses of more than 7% each, and even historically defensive sectors such as consumer staples fell, though not as much.
These falls mirror investor concerns over the mounting trade war's effect on global growth, especially for import-reliant and interest-rate sensitive sectors. Materials and consumer-discretionary shares, both extremely dependent on international supply chains, declined 7% and 6.5%, respectively. Technology shares lost over 4%, while utility and healthcare shares also registered significant declines.
Bond markets shaken by rate spike following initial flight to safety
First, investors took cover in Treasuries, driving the 10-year Treasury yield under 4%. That rally soon faded. In its wake came the largest one-week rise in the 10-year yield in close to 25 years, suggesting not only inflationary fear but a loss of confidence in American creditworthiness. The steep selloff in bonds was sufficient to get the administration's attention, prompting Trump to postpone most of the new tariffs for 90 days in a bid to soothe markets, The Wall Street Journal reports.
Even so, Treasury yields resumed their upward climb by Friday, with the 10-year yield topping 4.6%. The bond market's wild swings have unsettled investors, particularly because Treasurys are typically seen as the safest assets in times of market stress.
Oil crashes and the dollar slumps as traders flee US assets
Oil prices for crude have sunk to their lowest point since 2021 to below $70 a barrel, as recession concerns grip the globe. This price collapse in the energy sector has also added its weight to the energy stocks, increasing fears regarding future earnings and capital spending within the industry.
At the same time, the US dollar has fallen sharply, especially against the euro and yen. The WSJ Dollar Index, which tracks the greenback against a basket of world currencies, has dropped steadily during the crisis. The weakening dollar indicates eroding investor confidence and growing risk aversion for US assets.
Volatility reaches pandemic-era highs as traders prepare for more mayhem
Market volatility has come back with a vengeance. The Cboe Volatility Index, or VIX, also commonly known as Wall Street's "fear gauge," hit its highest since March 2020 — the peak of the COVID-19 panic. Traders are gearing up for more extreme price action, with the trade war, the health of the economy, and possible policy changes by the Federal Reserve being a source of uncertainty.
As trillions of dollars in equity value swing every day, the White House now hears mounting pressure from corporate CEOs, investors, and international allies alike to change course on its provocative trade policy. But with tariffs still pending over major sectors and economic signs already flashing danger warnings, the course ahead still threatens to go downhill.
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