In every corner of the financial markets, from stocks to bonds to commodities, money managers are sending Donald Trump the same unmistakable message: The trade war he unleashed is threatening to set off a worldwide recession — and fast.
After China retaliated against Trump’s tariff hikes, traders are pricing in what increasingly looks like a negative-feedback loop as Trump indicates he’s not going to back down.
The grim signs continued to pile up on Friday, when even a significantly stronger-than-expected US jobs report did virtually nothing to dispel the growing worries about the state of the global economy.
The S&P 500 Index tumbled as much as 5.2 percent, putting it on pace for the steepest two-day slide since March 2020, when the pandemic sent the US into lockdown.
Stocks in Italy, France, Switzerland and Germany have fallen into correction territory after dropping 10 percent or more from their highs. Oil tumbled Friday by the most in nearly three years, before paring the drop, on speculation demand will slow. The cost to protect investment-grade debt against default surged by the most since the regional banking meltdown of March 2023. Government bonds and the Japanese yen have rallied as investors rush into havens. And in the US, traders ramped up bets that the Federal Reserve will cut interest rates aggressively during the second half of the year to keep the economy from stalling.
“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.”
The president’s decision Wednesday to slap punitive tariffs on some 60 countries — including China and the European Union — marked a major pullback from the steady increase in globalization that has defined the world’s economy for the last several decades. Trump’s go-it-alone approach also has put him at odds with governments around the globe, raising the stakes for the US, which relies on investors and central banks overseas to absorb an every rising supply of its debt.
The president’s decision drove Wall Street strategists and economists to revise their outlooks, anticipating that rising import prices are almost certain to deliver another inflationary shock and upend a US economy that has surprised forecasters with its strength since the pandemic.
On Friday, traders ignored the type of news that would usually have set off a rally: The Labor Department’s figures showed hiring unexpectedly accelerated last month, with 228,000 new jobs added to payrolls.
“US trade policy was structurally changed on massive scale Wednesday,” said Michael O’Rourke, chief market strategist at JonesTrading Institutional Services. “The jobs report is old news and useless to investors.”
The US stock selloff has sent the tech-heavy Nasdaq 100 down around 20% since mid-February. Even small-cap stocks, once seen as likely to benefit from Trump’s protectionism, have been hit as concerns about a recession shifted to the fore. Wall Street’s fear gauge — the CBOE Volatility Index or the VIX — spiked above 45, sending it toward the highest closing 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; not Fed, not earnings, not jobs numbers.”
“If Washington continues on this path in a trade war and this escalated any further over the weekend, we are in danger of a market crash on Monday,” Woods said.
As Trump threw out social media posts Friday saying he won’t reverse course — with one even containing a video clip of someone speculating that a stock market crash was all part of a plan to redistribute wealth and drive down interest rates — those worries rippled across other markets.
Sanguine voices are hard to find. JPMorgan Chase & Co. Chief Economist Bruce Kasman, for one, said he sees a 60 percent 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 some 14% in just two days to around $62 a barrel, echoing a move seen during the pandemic, on concerns demand will tumble.
As the stock selloff continued Friday, investors continued to pile into US 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 percent, the lowest since 2022.
“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.” (Bloomberg)
