A selloff in stocks deepened, bonds climbed and oil hit a four-year low as Federal Reserve Chair Jerome Powell signaled the damage of a trade war will be bigger than anticipated, with the potential effects including higher inflation and slower growth.
Despite the economic risks from President Donald Trump’s trade war such as China’s decision to retaliate, Powell reiterated a wait-and-see approach on rates. The S&P 500 saw its worst two-day plunge since March 2020 in a rout that has shed about $5 trillion in value, with the gauge down 6% on Friday. The Nasdaq 100 entered a bear market. Treasury 10-year yields slid two basis points to 4.01%. Money markets fully priced in four Fed reductions this year. The dollar rose 1%.
“The action within the market is shouting recession,” Doug Ramsey, chief investment officer at the Leuthold Group, said in an interview. “And market action itself is very often the final catalyst that pushes you into recession.”
While the latest jobs report suggested the labor market was holding up well, that was before Trump’s aggressive tariffs start making their way through the economy. Trade tensions grew as China retaliated against new US levies with a slew of measures, including duties on all American imports and export controls on rare earths.
Trump said his economic policies “will never change.” Later, the president noted he had a “very productive call” with Vietnam, sending shares of companies that have large manufacturing operations in the country, including Nike Inc. and Lululemon Athletica Inc., soaring.
ByteDance Ltd. confirmed it’s in discussions with the US about plans to keep TikTok running in the US.Big techs including Nvidia Corp. and Tesla Inc. slumped. US-listed Chinese stocks like Alibaba Group Holding Ltd. and Baidu Inc. also tumbled. A gauge of big banks hit the lowest since Aug. 7, with Morgan Stanley and Goldman Sachs Group Inc. down over 7%.
The speed of the latest rout on Wall Street is rekindling unpleasant memories of market-wide trading halts that fired during the Covid meltdown of March 2020. The S&P 500’s slide on Friday came within striking distance of the 7% plunge that would trip the NYSE breakers that halt all trading for 15 minutes.
Several forecasters are turning ice cold on US equities, telling investors to refrain from buying the selloff as a historic trade war raises the specter of a recession.
“The stock market is basically building in that this could go on for a couple of quarters and actually turn into higher unemployment, and the consumer withholding their spending, and corporations freezing decisions and causing not just a mild recession but something more serious than that,” said Peter Mallouk at Creative Planning, which oversees $360 billion.
Bank of America Corp.’s Michael Hartnett told investors to “short” risk assets until Trump pivots away from tariffs and toward tax cuts, higher energy supply, deregulation and an aggressive increase in the debt ceiling. UBS Global Wealth Management’s Mark Haefele cut his rating on US stocks to neutral.
“Even if in the next few weeks it looks like we’re going to start negotiations, and you get a de-escalation, I think the market corrects a little bit more, bottoms out, Nouriel Roubini said at a gathering of economists and business leaders on the banks of Lake Como in Cernobbio, Italy.
A few others are finding opportunities. Ed Yardeni of eponymous firm Yardeni Research said it was time to buy the dip.
Investor Bill Gross said in a post on X that “next week may present some opportunities.” He noted that the US financial market is “highly levered” and that leverage is unwinding “without value considerations.”
“Still waiting for this falling levered knife to hit bottom,” he added.
The fastest US stock market selloff since the depths of the Covid pandemic has left valuations looking cheap. But if a recession is inevitable due to the global trade war, the definition of inexpensive becomes relative.
Historically, the S&P 500’s trailing price-to-earnings ratio slides to an average of 15.6 during routs that precede economic downturns, according to data compiled by Sam Stovall, chief investment strategist at research firm CFRA. It’s currently at 23 despite the recent selloff, meaning there’s still plenty of room for share prices to fall.
The first signs of capitulation among normally bullish retail traders are showing up in data at JPMorgan Chase & Co. and Fidelity Investments.JPMorgan reported retail orders amount to net selling of $1.5 billion as of noon Friday, the most in the first 2.5 hours of trading in its history. That came a day after the firm’s figures showed individuals were net buyers of $4.7 billion of shares, the biggest day over the past decade.
At Fidelity’s brokerage unit, individual investors were still buying their favorite stocks and exchange-traded funds Friday, but the level of purchasing relative to sale orders showed a slowdown from the prior day.
JPMorgan Asset Management’s David Lebovitz says stocks have hit dip-buying territory, based on his view that the US will still dodge a tariff-induced recession.
Lebovitz, who helps shape the allocation priorities of the $3.6 trillion money manager, has been waiting for the S&P 500 to hit the 5,100 level — which it broke below on Friday afternoon.
“The cheaper equities get, the more interested we become,” said Lebovitz, the global strategist at the bank’s multiasset solutions strategy team, in an interview. “If you look over time, going underweight equities in a non-recessionary year oftentimes does not work well from a return perspective.”
Wall Street has been befuddled by Trump’s vision of bringing manufacturing operations back to the US, something that would be extremely costly and take years if not decades to accomplish.
Economists generally expect that tariffs will lift inflation and slow growth, keeping the Fed in wait-and-see mode. But the debate over the path of interest rates has ramped up after the tariff announcement. While Morgan Stanley now expects no cuts this year, down from one previously, citing inflation risks, UBS Global Wealth Management see more easing.
“The risk to growth outweighs the risk of higher inflation based on the current US tariff policy,” said Anthony Saglimbene at Ameriprise. “Thus, we believe the Federal Reserve may need to act sooner rather than later by cutting its policy rate if it also believes or sees a deterioration in the labor market based on current fiscal policies.”
Markets have priced in a roughly 50% probability of a quarter-point rate reduction at the next Fed meeting in May. Some traders are even betting on an emergency rate cut before the May 6-7 meeting, with open interest in the April fed funds futures soaring.
“While investors are hoping that the Fed comes to the rescue, it’s unclear how a few potential rate cuts this year will undo the economic damage that these tariffs are likely to cause,” said Emily Bowersock Hill at Bowersock Capital Partners.
