By Sam Goldfarb
U.S. stocks took a heavy beating for two days in a row last week. On Monday, it was the rest of the world's turn.
Historic turmoil in financial markets left investors with few places to hide as President Trump's challenge to world trade intensified stock losses from Hong Kong to France. Hopes that the White House would ride to the rescue over the weekend, pausing the tariffs, were dashed.
Indeed, Trump actually escalated the trade war, saying Monday he planned to add an additional 50% tariff on China starting Wednesday if Beijing doesn't withdraw its planned 34% retaliatory tariff increase on the U.S. Other countries across the globe were scrambling to see if they could negotiate a deal with the administration.
Japan's Nikkei 225 logged its biggest drop since last August. Hong Kong's Hang Seng lost 13% in its largest one-day fall since the Asian financial crisis of 1997. France's CAC 40 slid 4.8%, adding to its worst four-day stretch since the Covid meltdown. Even U.S. Treasurys sold off, a blow to investors who had flocked to bonds for safety in recent days.
The story in the U.S. markets was extreme volatility, with the S&P 500 one minute dropping nearly 5% to teeter on the edge of a bear market -- a fall of 20% from a recent peak -- then rebounding into the green before finishing 0.2% lower.
Investors said they remained deeply worried about what Trump's tariffs could do to the economy. But many were also anxious about missing a rebound should the administration soften its policies. In an example of their hunger for news that might slow the losses, morning rumors about a pause in tariffs sent indexes on a $2 trillion ride higher, only for stocks to quickly reverse course when the White House issued denials and Trump threatened the new tariffs on Chinese imports.
"There's just way too much happening in the world right now to feel like there's an edge to be gained from taking a stand on saying something is over or will continue," said Michael Antonelli, managing director at Baird.
The Dow Jones Industrial Average fell 0.9%, or about 349 points, while the Nasdaq Composite ticked up 0.1% following comments from Trump in the afternoon that he would seek "fair deals" with other countries.
Just a week ago, investors were feeling cautiously optimistic about the economy. Stocks rallied in the days leading up to Trump's tariff announcement on April 2, reflecting hopes that the Rose Garden event would at least provide more clarity about the president's plans. Instead, Trump shocked investors with the scale of his planned tariff increases, sending markets into a tailspin.
Trading has remained orderly, and there so far are few signs of stress in the critical short-term funding markets that underpin Wall Street trading. The top concern, though, remains whether the selloff would worsen and trigger margin calls that forced investors to sell even more to meet them, one bank executive said.
Few stocks have been spared. Once high-flying tech giants like Apple and Nvidia have been particularly hard-hit, with both losing more than $1 trillion in market value since their peaks, according to Dow Jones Market Data.
But investors have also been dumping shares of businesses that they view as especially vulnerable to a downturn. Those include smaller-size companies, as well as banks and energy companies.
A sharp selloff in Treasurys also challenged investors on Monday. U.S. government bonds had rallied in the wake of Trump's tariff announcement, reflecting investors' flight to safer assets and bets that a slowdown in growth would push the Federal Reserve to cut interest rates sooner than it had previously expected.
Treasury yields, which fall when bond prices rise, initially resumed their decline when trading opened in Asia. But they climbed gradually from there. By the end of the session, the yield on the 10-year U.S. Treasury note was 4.164%, according to Tradeweb--close to its level before last week's tariff event.
Analysts and traders struggled to explain the sharpness of the reversal.
Some pointed to looming auctions of 10-year notes and 30-year bonds this week, which they said could pose a test to the market given the general state of uncertainty on Wall Street. Many blamed short-term trading dynamics rather than economic fundamentals.
"Tactically, it's just a very difficult environment. It's very whiplashy, " said Blake Gwinn, head of U.S. rates strategy at RBC Capital Markets.
Even if Trump doesn't change course, some investors noted that stock indexes can't fall forever. Prices, they said, could stabilize once they fully account for the worst possible economic outcome.
Yet that level, most agreed, remains a ways off even now.
As of Friday, the S&P 500 traded at 18.3 times its constituent companies' projected earnings over the next 12 months, according to FactSet. That is down from 22.5 at the index's February record but just slightly below a 10-year average of 18.6.
Some investors argued that markets have been so rattled in recent days that they are unlikely to stage a strong recovery even if the White House does scale back tariffs in the coming days or weeks.
"A rebound is possible," said Tim Murray, a capital markets strategist at T. Rowe Price. "But it is entirely based on a level of confidence about what Trump's going to do, and it's going to be hard to get there."
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
April 07, 2025 16:59 ET (20:59 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
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