By Sinead Carew, Lewis Krauskopf, and Amanda Cooper
NEW YORK/LONDON – On Thursday, international investors were contending with increasing risks of an economic slowdown and a widespread trade conflict. They hurriedly sought refuge in secure investments to protect themselves from the repercussions of U.S. President Donald Trump’s extensive tariff measures.
The financial world was shocked late Thursday when Trump declared the imposition of the most substantial trade barriers from Washington in over a century. This action sent shockwaves through equity markets and caused the dollar to falter; investors flocked to safer havens such as government bonds and the Japanese yen for security.
Mona Mahajan, who leads investment strategy at Edward Jones, stated that 'the scale and extent of the imposed tariffs surpassed even the predictions made by the most pessimistic analysts.' She further noted that this realization is dawning upon the market and has the potential to significantly affect economic expansion as well as clearly influence inflation rates.
The total stock market value of S&P 500 firms plummeted by approximately $2.4 trillion, marking their most significant single-day decline since the onset of the coronavirus crisis caused widespread turmoil in global markets on March 16, 2020.
Investors shifted their attention to the reactions of other nations regarding Trump’s actions. Potential responses encompass negotiations, retaliations, and measures aimed at safeguarding local businesses.
Investors mentioned they were preparing for the rising likelihood that the global economy might be heading towards a recession. Several stated they were attempting to safeguard their investments against tariffs by choosing assets capable of enduring an economic downturn along with elevated inflation rates or opting for equities from firms that depend minimally on cross-border commerce.
Trump dismissed the stock market decline and remained supportive of his tariff choice.
"I believe things are progressing quite smoothly," he stated to journalists as he left the White House for an extended weekend trip to Florida. He forecasted that "the markets will experience significant growth" ultimately.
For several months, investors believed that Trump's tariffs would primarily harm economies and markets beyond the U.S. borders. However, they now anticipate significant negative impacts on American assets following Trump’s announcement of a base tariff rate of 10% on all U.S. imports, with even steeper rates applied to certain nations.
On Thursday, investors pulled back from riskier investments, causing the S&P 500 index to plummet by 4.8%, marking its largest decline since June 2020. Meanwhile, the Nasdaq Composite fell approximately 6%, recording its most significant one-day drop since March 2020.
The Cboe Volatility Index, which gauges investors' unease through option prices, finished trading at its peak point since August 2024.
The US dollar declined to its lowest level in six months relative to both the Japanese yen and the Swiss franc, reducing the currency's appeal as a safe haven.
As stock prices dropped, global equity long-short hedge funds lost all their profits for the year, according to Goldman Sachs.
On Wall Street, the major decliners included some of the most highly valued large-cap stocks favored by investors. Apple dropped more than 9%, and Nvidia, a leading producer of AI chips, fell almost 8%.
U.S. bank stocks plunged to their lowest levels in months due to concerns that President Trump’s tariffs might lead to a recession and reduce consumer spending, potentially impacting profits negatively.
Fed funds futures surged as traders anticipated additional interest rate reductions by the Federal Reserve for the current year. There was significant buying of U.S. Treasury securities, causing the yield on the key 10-year notes to drop to slightly over 4%, marking their lowest point since mid-October.
As we entered this year, there was an expectation that this administration would greatly benefit the U.S. economy but pose challenges for the remainder of the globe," explained Hugh Gimber, a global market strategist at J.P. Morgan Asset Management based in London. "However, it’s becoming clearer that these policies within the U.S. will also prove challenging for America itself.
The Trump administration announced that the initial 10% tariffs will be implemented on April 5, with increased rates taking effect on April 9. As of midnight, a 25% tariff was imposed on imported vehicles. Additional duties encompass a 34% tariff on goods coming from China, 46% on those from Vietnam, 24% on products from Japan, and 20% on items originating in Europe.
Justin Onuekwusi, the chief investment officer at St James's Place, stated that retaliation against Trump's tariffs seems probable. However, he noted that nations will carefully consider their approach to ensure their response is politically savvy.
Hefty reprisals might trigger a tariff 'vortex of despair,' potentially causing an economic jolt severe enough to push us toward a downturn.
Trump's tariffs similarly affected markets beyond the U.S., though less significantly. European stocks dropped as the STOXX 600 declined by 2.6%. Meanwhile, the euro rose by 1.7% relative to the dollar.
The European Union leader, Ursula von der Leyen, characterized the tariffs as a significant setback for the global economy and stated that the 27-nation group was ready to retaliate with corresponding measures.
In China, where preparations were made for tariffs and the majority of income is generated domestically, sales in stocks and currency remained relatively restrained.
Clearly, investors are worried about potential retaliatory actions from other nations that might trigger a worldwide economic downturn," said Oliver Pursche, who serves as the senior vice president at Wealthspire Advisors in New York. "However, we've discovered within just the past few months... sporadic tariff implementations aren’t unprecedented for Trump. We will have to wait and observe whether these tariffs persist.
Despite the market downturn on Thursday, concerns about tariffs have significantly impacted investments for weeks now. The S&P 500 indicated a correction in mid-March with a decline exceeding 10% from its peak. Following Thursday’s plunge, the index closed more than 12% lower compared to its all-time high set in February.
"Earlier, people discussed whether increased clarity might enhance the market," stated Jeanette Garretty, who serves as the chief economist at Robertson Stephens.
Yet now you have clear understanding, and nobody appreciates what they behold.
(Additional reporting by Lewis Krauskopf and Stephen Culp from New York, Steve Holland from Washington, Lisa Pauline Mattackal from Bengaluru, Noel Randewich from San Francisco, along with Amanda Cooper, Dhara Ranasinghe, and Lucy Raitaino from London; Graphics designed by Pasit Kongkunakornkul; Edited by Paritosh Bansal and David Gregorio)