Wall Street is careening through a shocking day of trading, catapulting from an early drop that had dragged it 20 per cent below its record to a sudden rise, only to revert to losses as worries remain about whether US President Donald Trump’s trade war will torpedo the global economy.
The S&P 500 went from a 4.7 per cent drop shortly after the start of trading all the way to a surge of 3.4 per cent, a gain that would have counted as its best day in years. It then quickly gave up all of it to revert to a drop of 1.3 per cent, as of 10.30am on Monday (12.30am Tuesday AEST).
The Dow Jones Industrial Average was down 736 points, or 1.9 per cent, and the Nasdaq composite was 1.3 per cent lower. Both also whipped through intense reversals, with the Dow going from a loss of 1,700 points to a gain of nearly 900 points.
The intense swings come as financial markets strain to see hopes that Trump may let up on his stiff tariffs, which economists see raising the risks of a global recession.
Some investors are holding onto hope that Trump may lower his tariffs after negotiating with other countries, and Trump said Sunday that he’s heard from leaders “dying to make a deal”.
A drop in tariffs relatively soon could help avoid a recession, but whether that can happen is still uncertain.
On Sunday Trump told reporters aboard Air Force One that he does not want markets to fall. But he also said he wasn’t concerned about a sell-off, saying “sometimes you have to take medicine to fix something”.
Trump has given several reasons for his stiff tariffs, including to bring manufacturing jobs back to the US, which is a process that could take years. Trump on Sunday said he wanted to bring down the numbers for how much more the US imports from other countries versus how much it sends to them.
“The recent tariffs will likely increase inflation and are causing many to consider a greater probability of a recession,” JPMorgan CEO Jamie Dimon, one of the most influential executives on Wall Street, wrote in his annual letter to shareholders on Monday.
“Whether or not the menu of tariffs causes a recession remains in question, but it will slow down growth.”
The financial pain once again hammered investments around the world. Stocks in Hong Kong plunged 13.2 per cent for their worst day since 1997. A barrel of benchmark US crude oil briefly dropped below $US60 ($100) for the first time since 2021, hurt by worries that a global economy weakened by trade barriers will burn less fuel. Bitcoin sank below $US78,000, down from its record above $US100,000 set in January, after holding steadier than other markets last week.
Trump’s tariffs are an attack on the globalization that’s remade the world’s economy, which helped bring down prices for products on the shelves of US stores but also caused production jobs to leave for other countries.
It also adds pressure on the Federal Reserve. Investors have become nearly conditioned to expect the central bank to swoop in as a hero during downturns. By slashing interest rates to make borrowing easier for US households and companies, along with other more untraditional moves to juice the economy, the Fed helped the US economy recover from the 2008 financial crisis, the 2020 COVID-19 crash and other bear markets.
But the Fed may have less freedom to act this time around because the conditions are so much different. For one, instead of a coronavirus or a system built up on too much belief that US home prices would keep rising, this market downturn is mostly because of economic policy from the White House.
Perhaps more importantly, inflation is also higher at the moment than the Fed would like. And while lower interest rates can goose the economy, they can also put upward pressure on inflation. Expectations for inflation are already swinging higher because of Trump’s tariffs, which would likely raise prices for anything imported.
“The idea that there’s so much uncertainty going forward about how these tariffs are going to play out, that’s what’s really driving this plummet in the stock prices,” said Rintaro Nishimura, an associate at the Asia Group.
Trump-backing billionaires poised to lose nearly a trillion dollars in two days
If the S&P 500 finishes the day more than 20 per cent below its record, it’s a big enough drop that Wall Street has a name for it. A “bear market” signifies a downturn that’s moved beyond a run-of-the-mill 10 per cent drop, which happens every year or so, and has graduated into something more vicious.
The index, which sits at the heart of many investors’ 401(k) accounts, has lost nearly 20 per cent since setting a record less than two months ago. It’s coming off its worst week since COVID-19 began crashing the global economy in March 2020.
Nathan Thooft, chief investment officer and senior portfolio manager at Manulife Investment Management, said more countries are likely to respond to the US with retaliatory tariffs. Given the large number of countries involved, “it will take a considerable amount of time in our view to work through the various negotiations that are likely to happen”.
“Ultimately, our take is market uncertainly and volatility are likely to persist for some time,” he said.
The massive sell-off in riskier assets at the start of the trading week follows Trump’s announcement of sharply higher US import taxes and retaliation from China that saw markets fall sharply on Thursday and Friday.
Trump’s tariff strategy has long been criticised by economists, investors and business leaders, who fear that US isolation will severely limit economic growth.
Tokyo’s Nikkei 225 index lost nearly 8 per cent shortly after the market opened and futures trading for the benchmark was briefly suspended. It closed down 7.8 per cent at 31,136.58.
European shares followed Asian markets lower, led by Germany’s DAX index, which briefly fell more than 10 per cent at the open on the Frankfurt exchange, but recovered some ground to move down 4.8 per cent in midday trading. In Paris, the CAC 40 shed 5.1 per cent, while Britain’s FTSE 100 lost 4.9 per cent.
Late on Sunday, Trump reiterated his resolve on his decision to introduce tariffs of 10 per cent to 50 per cent on goods imported into the US, a move seen as massively disrupting world trade and supply chains across borders. Speaking to reporters aboard Air Force One, he said he didn’t want global markets to fall, but also that he wasn’t concerned about the massive sell-offs, adding, “sometimes you have to take medicine to fix something”.
Trump posted on his Truth Social site early on Monday, blaming China and other “abusing countries” for retaliating against the US with additional tariffs.
Heavy selling kicked in after China on Friday matched Trump’s tariff, upping the stakes in a trade war that many fear could end in a global recession. Even a better-than-expected report on the US job market, usually the economic highlight of each month, wasn’t enough to stop the slide.
