This week, investors around the world sent President Trump a clear message about his new tariff policy, and presented him with a high spirited announcement as a reworking of the economic order.
They don't like it.
The S&P 500 fell 6% on Friday, bringing its weekly loss to 9.1%. Stocks have not fallen so quickly since the beginning of the coronavirus pandemic – it was the steepest weekly decline since March 2020.
Thus, the S&P 500 is quickly approaching the territory of bare markets, falling 20% ​​from the latest heights that show extreme pessimism among investors. By Friday, the index had fallen more than 17% from its February peak. Both the high-tech NASDAQ Composite and the small business Russell 2000 Index, sensitive to changing economic outlooks, are already falling into the bear market. Stocks are falling all over the world.
However, the meltdown was not driven by the emergence of a new and deadly virus and the worst economic crisis since Great Fear Presion in 2007 and 2008, which wiped out stock prices.
It was driven by policy decisions by the president.
“We hope we hear the message that the stock market is sending to the administration,” veteran market analyst Ed Yaldeni said in a television interview. “The market has given a big thumbs up on this tariff policy.”
Analysts and market historians struggled to refer to another time when the president caused so much damage to the financial markets. There are some recent similarities. The poorly timed budget proposal by British Prime Minister Liztrus in 2022 led to days of market turmoil and had to resign within weeks.
But Trump hasn't expressed interest in backdowns. “My policy will never change,” he wrote in a social media post Friday.
As such, investors, economists and business leaders are rushing to assess the new, unprecedented policies and economic damages these policies may cause.
Lindsay Rosner, head of multi-sector fixed income investment at Goldman Sachs Asset Management, said: She added that the scale of tariffs “increases the probability of a recession.”
It's an amazing turn of emotion. After Trump was elected, in the first month of his administration, investors wanted to see how a professional business administration that had inherited a healthy economy would bring. They also expected that the president's impulse towards fundamental economic change could be included by the stock market itself.
Despite concerns that the stocks were highly valued, they continued to climb. It peaked in February.
But even before this week's meltdown, EPFR Global data showed investors withdrawing $25 billion from funds investing in US stocks in the two weeks leading up to Wednesday when Trump announced tariffs. Since then, JP Morgan has raised the chance of a recession to 60% for the next 12 months, Deutsche Bank has significantly reduced forecasts for the US economy this year, while others on Wall Street have lowered growth expectations and raised inflation forecasts.
Investors are also projecting the need for the Federal Reserve to step in to support the economy this year, rapidly increasing the possibility of more interest rate cuts. Sales on Wall Street erased $5 trillion in market value from S&P 500 companies in just two days, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
As bad as the recent decline in the S&P 500, other market measurements are in a worse state. The Russell 2000 has lost a quarter of its value since its peak in November. The Nasdaq Composite is loaded with hammered high-tech stock this week, down nearly 23% from its December peak.
“I'm saying this is really bad,” said Liz Anne Sonders, chief investment strategist at Charles Schwab. “This exceeds what I saw in anyone's worst-case scenario. This helped me to fear the animal spirit, which was the one that was revived shortly after the election.”
Dan Ivascyn, chief investment officer of large asset manager Pimco, said this week's tariff announcement marked “a massive material change into the global trade system” and “a material shock to the world economy.”
“In recent decades, economics has tended to promote political decisions,” he said. “We may be in an age where politics drives economics, and it's a very different environment where we invest.”
Some say Trump himself offered a precedent. In 2018, he imposed tariffs on global steel and aluminum imports, solar panels, washing machines, and $200 billion in goods from China. However, these collections were pale compared to those unfolded on Wednesday, and the market impact was much more subdued.
Trump had promised to use tariffs again to rebuild the US economy, but he has taken manufacturing back within the borders of the country, reducing US reliance on foreign trade.
According to the rating agency, the new taxes raised the average effective tariff rate on US imports to a level they have never seen since the 1930s, according to S&P analysts.
Some investors hope that tariffs are merely the starting point for negotiations that will overthrow them over time.
But Trump suggests he is open to negotiating tariffs with other countries, but China has already responded by matching his additional 34% tariffs. Canada is expected to quickly introduce its own tariffs and Europe is expected to respond to them too.
“The baseline is so high right now that even well-negotiated tariffs will be high,” said Adam Hetts, multi-asset global heads at Janus Henderson Investors. He feared that the damage had already been done.
“Damages have teeth and damage occurs because consumers and businesses are already beginning to change behavior,” Hetts reflects the fears other investors have.
Few CEOs spoke about the tariffs, but few people expressed alarms.
When the tariffs were announced, Gary Friedman, CEO of furniture retailer RH, was receiving a return call with investors. After checking RH's stock price, he heard the curse. RH receives a large portion of its products from Asia, Friedman explained.
On Thursday, Conagra Brands CEO Sean Connolly told analysts that the food company was trying to keep up with a sudden change in customs policy.
“Things move around not only weekly or daily, but every hour of the day now,” he said.
But from the White House, the message is one of the liveliest things. If the investor has the patience to see it.
“The market will be booming,” and “the country will be booming,” Trump said Thursday. Commerce Secretary Howard Lutnick said in an interview Thursday that “the American market is trying to do very, very well” over the long term.
History shows that even the worst market crisis is over. When investors are satisfied that prices have fallen sufficiently to reflect the new reality, another change in policy gives them a reason to start buying again. A report on March employment that is much stronger than expected on Friday shows that the economy was still on a solid footing last month and did not cause a market recovery.
Business leaders respond to the investigation saying they intend to slow down their investment plans. Executives from airlines, banks, retailers and energy companies saw the company's valuation fall this week. Consumers say they are also going to spend less money after trying to get ahead of tariffs on some expensive items.
“We don't know what we got,” said Sanders of Charles Schwab. “I don't think it will alleviate the element of uncertainty.”
