US Stock Markets Drop Amid Trade War Fears and Tariff News

This afternoon, the S&P 500 Index ($SPX) (SPY) is down -0.42%, the Dow Jones Industrials Index ($DOWI) (DIA) has declined by -1.08%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.02%.

The markets opened lower for a third consecutive session today, with the S&P 500 reaching a 14-month low and both the Dow Jones and Nasdaq indices hitting 15-month lows. These declines stem from growing concerns that an escalating trade war could push the global economy into recession. President Trump addressed these worries over the weekend, urging people to “forget the markets for a second” while reaffirming his commitment to current tariff policies. Treasury Secretary Bessent also dismissed market apprehensions, asserting that an economic boom is imminent.

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In early trading, stock indexes briefly gained ground after reports of a potential tariff pause surfaced; however, the White House quickly dismissed these claims as “fake news.” Although stocks recovered slightly from their session lows, investor sentiment remains jittery, highlighted by the Cboe Volatility Index ($VIX), which earlier surged above 60.

The downturn in equity markets began last Wednesday when President Trump announced new reciprocal tariffs that exceeded market expectations. This announcement heightened fears that US trade policies might derail not only the US economy but also the global economy. The losses intensified last Friday following China’s retaliatory actions, which included a 34% tariff on all imports from the US starting April 10.

The steep decline in global equity markets has triggered a risk-off attitude among investors, prompting a flight to safety into government bonds. The turmoil has also caused a significant decline in commodity prices, with WTI crude oil dropping to a four-year low and COMEX copper prices falling to a three-month low.

Last Wednesday, Trump declared that the US would impose at least a 10% tariff on virtually all countries, with higher rates set for around 60 nations. The newly implemented tariffs applied to imports from most countries as of Saturday, while the higher rates will take effect on April 9. Certain sectors, such as steel and automobiles, are exempt from these tariffs. Canada and Mexico remain unaffected by the new tariffs, maintaining the previously announced 25% rates. In contrast, China faces a 34% reciprocal tariff, totaling 67%, while the EU will incur a 20% reciprocal tariff, amounting to 39%. Japan’s reciprocal tariff stands at 24%, raising the total tariffs to 46%.

Over the past month, stocks have faced pressure due to fears that US tariffs could hamper economic growth and corporate earnings. On March 4, President Trump implemented 25% tariffs on Canadian and Mexican goods and raised tariffs on Chinese goods from 10% to 20%. Last Wednesday, he signed a proclamation for a 25% tariff on US auto imports, effective Thursday. Initially, this will target vehicles fully assembled outside the US, and by May 3, it will extend to automobile parts manufactured abroad. Trump described these tariffs as “permanent” without any intention of negotiating exceptions.

This week’s market focus will remain on US trade policies and any retaliatory measures from other nations. On Wednesday, the minutes from the March 18-19 FOMC meeting will be released. Economists expect March CPI to ease to +2.6% year-on-year from 2.8% in February, while CPI excluding food and energy is projected to decrease to +3.0% from +3.1%. On Friday, March PPI final demand is anticipated to rise to +3.3% year-on-year from +3.2%, and PPI excluding food and energy is expected to climb to +3.6% from +3.4%. Additionally, the University of Michigan’s April US consumer sentiment index is forecasted to drop to 54.0 from 57.0 in March.

International markets today are also sharply lower, with the Euro Stoxx 50 falling to an eight-month low at -3.67%. Meanwhile, China’s Shanghai Composite Index plummeted to a six-and-a-quarter-month low, down -7.34%, and Japan’s Nikkei Stock 225 fell to a 17-month low, closing down -7.83%.

Interest Rates

June 10-year T-notes (ZNM25) are currently down -26 ticks, with the 10-year T-note yield climbing +13.2 basis points to 4.126%. After reaching a six-and-a-quarter-month high, June T-notes have retreated. The ongoing tariff situation has prompted foreign investors to liquidate dollar assets due to recession fears, negatively impacting T-notes. Additionally, T-notes face selling pressure following Fed Chair Powell’s statement last Friday that the Fed is not in a hurry to adjust monetary policy. Weighing further on T-notes is the upcoming auction of $119 billion of T-notes and T-bonds, starting with Tuesday’s $58 billion auction of 3-year T-notes.

Despite these challenges, T-notes receive support from concerns that a global trade war may push the US and global economies toward recession, coupled with today’s global equity selloff, which has bolstered demand for government debt. Furthermore, T-notes benefited from a drop in crude oil prices to a four-year low, diminishing inflation expectations and lowering the 10-year breakeven inflation rate to a six-and-a-half-month low of 2.139%.

In Europe, bond yields have recovered from early losses, with the 10-year German bund yield bouncing back from a one-month low of 2.430%, now up +5.0 basis points to 2.628%. The 10-year UK gilt yield has also rebounded from a three-and-three-quarter-month low of 4.363%, climbing +17.0 basis points to 4.618%.

Eurozone February retail sales increased by +0.3% month-over-month, falling short of expectations of +0.5%. Additionally, the Eurozone April Sentix investor confidence index dropped -16.6 to a one-and-a-half-year low of -19.5, below the expected -9.0. Germany’s February industrial production fell -1.3% month-over-month, also weaker than the anticipated -1.0%. Swaps are currently pricing in an 85% chance for a -25 basis point rate cut by the ECB during the April 17 policy meeting.

US Stock Movers

Among US stocks, the Magnificent Seven are experiencing downward pressure, with Tesla (TSLA) and Apple (AAPL) both down more than -5%. Microsoft (MSFT) has fallen over -1%, while Alphabet (GOOGL) is down -0.85%. Additionally, Nvidia (NVDA) is down -0.46%, and Meta Platforms (META) has decreased -0.27%.

Nevertheless, today’s rebound in chipmakers is helping to mitigate losses in the broader market. Companies like Applied Materials (AMAT), Analog Devices (ADI), Lam Research (LRCX), and Microchip Technology (MCHP) have risen more than +4%. KLA Corp (KLAC), ON Technology (ON), Marvell Technology (MRVL), and GlobalFoundries (GFS) are all up by over +3%.

Banking stocks are facing challenges today after Morgan Stanley downgraded large-cap and mid-cap banks from attractive to inline. Consequently, Franklin Resources (BEN) has dropped over -5%, and Goldman Sachs (GS) is down more than -3%.