[NEW YORK] US stocks tumbled on Friday (Apr 4), on pace for losses in six of the past seven weeks as strong labour data did little to mitigate anxiety about the impact of a trade war on the domestic economy.
The S&P 500 Index sank 2.4 per cent as at 9.31 am in New York, after declining as much as 4.1 per cent premarket. The Nasdaq 100 Index plunged another 2.6 per cent, teetering almost 20 per cent below its February record in a rout whose swiftness is rivalled only by the pandemic meltdown in 2020 and 2000’s dot-com implosion. Technology megacaps including Nvidia, Tesla and Apple all fell. US-listed Chinese stocks such as Alibaba and Baidu also slumped. The SPDR S&P Bank ETF dropped 4 per cent, with Morgan Stanley leading the declines.
The rout came as China imposed a 34 per cent tariff on all American imports starting Apr 10, in addition to targeted actions against poultry producers and weapons makers, according to the official Xinhua News Agency. The latest salvo in Donald Trump’s trade war added to volatility that’s been gripping global financial markets since the president announced the harshest tariffs in a century. Trump, for his part, appears to be sticking to his guns, saying his economic policies “will never change”.
The Cboe Volatility Index soared near 40 – levels associated with some of the worst market turbulence in recent memory. Treasuries continued to soar as investors sought safety, while a measure of credit risk spiked to the highest level since the regional banking crisis in March 2023.
US job growth beat forecasts in March and the unemployment rate edged up, pointing to a healthy labour market before the economy gets hit by widespread tariffs. This was the first major piece of data for the quarter – which could have wide-ranging implications for bond, stock and currency markets as well as the Fed’s next moves. Chair Jerome Powell is scheduled to deliver remarks at 11.25 am in Arlington, Virginia, which will be parsed for signs of weakness spreading to the workforce.
“A good jobs report won’t be enough to quell recession fears because it’s backward-looking and won’t full give insight into how hard the economy will take a hit from the trade war,” said Scott Ladner, chief investment officer at Horizon Investments.
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Now, traders are boosting their expectations for the Federal Reserve to cut interest-rates this year. Money markets are fully pricing four quarter-point reductions by year-end, with a more than 50 per cent chance of a fifth – up from just three cuts priced in before the levies were announced. That pushed US 10-year yields below 3.90 per cent, the lowest since before election day, while oil tumbled to the lowest in four years.
The S&P 500 is down 14 per cent from its February record and on track for a sixth week of losses in the past seven. Fund managers yanked US$4.7 billion out of US stocks in the week to Apr 2 in the second week of outflows, data compiled by EPFR Global and Bank of America show.
“The market is bleeding and more pain is clearly coming as this escalating trade war risks pushing the US economy into a recession,” Luca Paolini, chief strategist at Pictet Asset Management said over the phone. “It’s not a surprise China would retaliate. But this will inevitably cause a recession because the damage is done – unless Trump backs off.”
Friday’s losses follow a massive wipe out by US stocks on Thursday that erased US$2.5 trillion in value in the wake of US President Donald Trump’s drastic new trade tariffs, which ignited widespread recession fears.
The trade fight weighed hard on shares of industrials and materials companies on Friday, including tool company Stanley Black & Decker, which fell 2 per cent while machinery builder Caterpillar dropped 5.6 per cent. Motorcycle manufacturer Harley-Davidson and appliance maker Whirlpool also declined. The Philadelphia Semiconductor Index that houses Micron Technology and Advanced Micro Devices sank 3.6 per cent.
Trump on Wednesday imposed the steepest American tariffs in a century, saying he will apply a 10 per cent tariff on all exports to the US, with even higher duties on some 60 nations, to counter large trade imbalances with the US.
“How bad will it get for the economy? With so much uncertainty swirling, stocks are selling off and that’s signalling that investors see both economic and profit growth slowing because of the trade war,” said Adam Sarhan, founder of 50 Park Investments.
The derivatives market is pricing in more volatility ahead. Options traders are betting that the S&P 500 will move roughly 1.6 per cent in either direction after the jobs print today, based on the price of at-the-money straddles, according to Citigroup. That’s well above the average straddle price for a 0.9 per cent swing in either direction over the past 12 months.
The equity rout now has Wall Street’s biggest stock bull – Oppenheimer’s John Stoltzfus – rethinking his 7,100 price target on the S&P 500, which is among the highest on Wall Street tracked by Bloomberg and would imply a 25 per cent gain to Thursday’s close. That comes as RBC Capital Markets’s Lori Calvasina cut her price target on the index for a second time this year to 5,550 from 6,200, given a dimmer outlook for economic and profit growth.
“Without a doubt, where we are sitting here it is under review and has been under review for awhile,” John Stoltzfus said on Friday. “The reality has been until we got these rather surprising unpleasant levels of tariffs and the market’s reaction, we are naturally going to have to take a look and sharpen our pencils, so to speak.” BLOOMBERG
