Trading Desks Stunned By Historic Tariff Shock

Bloomberg Intelligence Chief Equity Strategist Gina Martin Adams joins Bloomberg Businessweek Daily to discuss today's market selloff.

In every corner of the financial markets, from stocks to bonds to commodities, investors are sending Donald Trump the same unmistakable message: The trade war he unleashed is threatening to set off a worldwide recession — and fast.

After China retaliated less than 48 hours after Trump rolled out his punitive tariffs, traders now are pricing in what increasingly looks like a negative-feedback loop as Trump indicates he’s not going to back down.

The grim signs continued to pile up on Friday, when even a significantly stronger-than-expected US jobs report did virtually nothing to dispel growing worries about the state of the global economy. Federal Reserve Chair Jerome Powell deepened those concerns, saying the shift in trade policy is likely to fan inflation and slow the pace of growth.

The S&P 500 Index tumbled as much as 5.2%, putting it on pace for the steepest two-day slide since March 2020, when the pandemic sent the US into lockdown.

Stocks in Italy, France, Switzerland and Germany have plunged 10% or more from their highs. Oil tumbled Friday by the most in nearly three years, before paring the drop, on speculation demand will slow. The cost to protect investment-grade debt against default surged by the most since the regional banking crisis of March 2023. Government bonds and the Japanese yen have rallied as investors rush into havens. And in the US, traders ramped up bets that the Fed will cut interest rates aggressively during the second half of the year to keep the economy from stalling.

“We are rapidly headed towards recession,” said Peter Tchir, head of macro strategies at Academy Securities. “The world was prepared for ‘reciprocal tariffs.’ Whatever the abomination that was launched at the Rose Garden was, it is a disaster — mostly for the US, but also for the global economy.”

The president’s decision Wednesday to slap tariffs on some 60 countries — including China and the European Union — marked a major pullback from the steady increase in globalization that has defined the world’s economy for the last several decades. Trump’s go-it-alone approach also has put him at odds with countries around the globe, raising the stakes for the US, which relies on investors and central banks to absorb an ever-rising supply of its debt.

Trump’s larger-than expected levies drove Wall Street strategists and economists to revise their outlooks, anticipating a shock that could upend an US economy that has surprised forecasters with its strength since the pandemic.

On Friday, traders ignored the type of news that would usually have set off a rally: The Labor Department’s figures showed hiring unexpectedly accelerated last month, with 228,000 new jobs added to payrolls.

“US trade policy was structurally changed on massive scale Wednesday,” said Michael O’Rourke, chief market strategist at JonesTrading Institutional Services. “The jobs report is old news and useless to investors.”

The US stock selloff has sent the tech-heavy Nasdaq 100 down around 20% since mid-February. Even small-cap stocks, once seen as likely to benefit from Trump’s protectionism, have been hit as concerns about a recession shifted to the fore. Wall Street’s fear gauge — the CBOE Volatility Index or the VIX — spiked above 45, sending it toward to the highest closing level since 2020.

“When there is fear in the market, as the VIX is telling us, everything will sell off,” said Jay Woods, chief global strategist at Freedom Capital Markets. “It does feel like the sky is falling off. This is very different scenario right now because we are at the whim of Washington; not Fed, not earnings, not jobs numbers.”

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