US President Donald Trump’s long-awaited unveiling of his trade plans, dubbed “Liberation Day,” has sent shockwaves through global markets, but what exactly is being liberated remains a subject of intense debate. Is it the US economy from global competition?
The US dollar from its position as the world’s reserve currency? Or perhaps, cordial relations with key trading partners?
While the full impact remains to be seen – with the 25% auto tariffs yet to kick in and the universal 10% tariffs scheduled to take effect April 5, followed by “reciprocal” tariffs on April 9 – the initial market reaction has been resoundingly negative.
Despite Trump’s optimistic pronouncements that “The markets are going to boom. The stock is going to boom. The country is going to boom,” the immediate aftermath was anything but celebratory for investors, who found themselves on the wrong side of a massive sell-off.
Panic on Wall Street: a flight to safety
After Thursday’s trading session, investors, far from feeling liberated, fled to the relative safety of bonds, seeking shelter from the storm unleashed by Trump’s policies.
The markets responded in brutal fashion.
- Stock market bloodbath: The S&P 500 plummeted 4.84%, and the Dow Jones Industrial Average slumped 3.98%, marking their largest declines since June 2020. The Nasdaq Composite plunged 5.97% for its worst session since March 2020.
- Small caps in bear territory: The Russell 2000 Index of small-cap stocks declined 6.59%, pushing it into bear market territory, defined as a 20% or more decline from a 52-week high.
- Bond market rally: The benchmark 10-year Treasury yield fell as low as 4% as investors piled into bonds, driving prices up.
The Magnificent Seven suffer a trillion-dollar wipeout
The tech giants known as the “Magnificent Seven” bore the brunt of the sell-off, collectively losing approximately $1.03 trillion in market capitalization, according to a CNBC analysis.
Apple shares were hit particularly hard, falling over 9% – their steepest decline in five years.
The fact that Apple’s supplier list is largely made up of countries disproportionately affected by Trump tariffs offers a compelling possible explanation.
Stagflation looming? Experts warn of economic peril
The market turmoil has stoked fears of stagflation, a toxic combination of slowing economic growth and rising prices.
Lindsay Rosner, Goldman Sachs’ head of multi-asset fixed income, warned CNBC that Trump’s tariff plan could slow growth and push up prices. JPMorgan economists go even further, predicting that Trump’s trade policies “would likely push the US and global economy into recession this year.”
This would place the Federal Reserve in a difficult position, forcing it to choose between combating inflation, stimulating growth, or standing aside and allowing events to unfold without intervention.
Global fallout: European markets slammed
The repercussions of Trump’s tariffs extended beyond US borders, with European stocks also taking a heavy hit.
The pan-European Stoxx 600 tumbled 2.57%, with major retail brands among the worst performers.
Shipping giant Maersk, often seen as a bellwether for global trade, plummeted 9.5%. In response, acting German Economy Minister Robert Habeck suggested that Trump would “buckle under pressure” and alter his tariff policies if Europe presented a united front.
As investors grapple with the fallout from the tariff news, the upcoming jobs report looms large. As one market strategist warned, a weak jobs report could be “a nail in the coffin for the US economy.”
While the European Union has been slammed with 20% duties, the UK was hit with a lower 10%, benefiting from its more balanced US trade relationship.
Most analysts agree that, from an economic perspective, there are few – if any – winners from the expected slowdown in growth and the fracturing of trade ties.
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