(Bloomberg) -- European stocks tumbled, dropping to the lowest since January 2024 as investors priced in significant economic repercussions from the global trade war initiated by Donald Trump’s aggressive new tariff regime.
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The Stoxx Europe 600 Index sank as much as 6.5%, extending losses after its biggest weekly decline since March 2020. The gauge was trading 5% lower as of 11 a.m. in London, marking a level last seen at the beginning of 2024. The DAX was 5.4% lower after plunging as much as 10%.
“There’s just a general sense of panic,” said Daniel Murray, Zurich-based chief executive officer of EFG Asset Management. “Everything is getting killed, even good companies that will likely fare relatively well.”
Sweden’s OMX Stockholm 30 Index was down 5.4%, putting it on track for a bear market. That’s after indexes in Italy, France, Switzerland and Germany slid into correction territory last week.
Defense stocks, one of the best-performing industry groups this year, led the drop as investors built cash by selling winners. Rheinmetall AG lost 10% and Hensoldt AG tumbled 12%. All 20 sectors in the Stoxx 600 fell, with energy, industrials and technology shares among the biggest decliners.
Monday’s action extended losses from Friday, when the Stoxx 600 slumped to cap the biggest weekly decline since the start of the pandemic. The gauge crossed into correction territory on concerns that the escalating trade war will hurt economic growth and curb consumer demand.
It’s been an abrupt reversal for European equities so far in April after stocks rallied in the first quarter over optimism that fiscal reforms in Germany would boost economic growth. Light positioning, cheaper valuations and lower interest rates also helped the region outperform the S&P 500 by the most on record on a quarterly basis.
But Trump’s tariff announcements were more severe than expected, sending investors fleeing equities globally. The S&P 500 saw its biggest two-day plunge since March 2020 to end last week, with the selloff slashing more than $5 trillion off the market’s value. The Nasdaq 100 entered a bear market.
Strategists are increasingly recommending investors avoid economically sensitive shares such as energy, and instead favor loading up on defensive sectors such as telecommunications and utilities.
A team at Morgan Stanley last week said the uncertainty from tariffs will pressure earnings even if negotiations ultimately water down the initial announcements, due to delays in investment decisions, hiring and M&A, as well as a consumer slowdown.
Investors will be monitoring the European Union’s response to Trump’s tariff announcements as the week kicks off. Finance ministers from Italy and Spain cautioned against too aggressive a response, while their counterpart in France said the bloc’s response could include regulating the use of data by American big tech groups.
Here is what market participants are saying:
Christopher Dembik, senior investment manager at Pictet Asset Management:
“What’s precipitating the selloff are the margin calls that hedge funds need to cover. That explains the fall of gold last week, with hedge funds taking profits to cover their losses. The same thing is at play today with hedge funds selling European equities, where they had made some profits, to cover margins calls. We’re in that phase of the selloff which follows capitulation: where hedge funds need to sell assets to cover margin calls. This can last a few days, it’s going to be a rough week. That said, technically, I think that we’re getting closer to the bottom where historically, the selling starts fading.”
Stephan Ekolo, equity strategist at TFS Derivatives:
“What we’re witnessing is a Black Monday: it’s tough for clients, there’s blood on the streets and there’s no respite in sight unless Trump backs down on tariffs or there’s a massive China stimulus.”
Fares Hendi, fund manager at Prevoir AM:
“What can you do? It’s a trade war! For us stock pickers the best is to do nothing, just don’t touch at anything. There’s just nothing fundamental about these moves. We just stay invested in the companies we own as believe in their business case. I’ve got calls from clients asking us if this is a good time to reinvest in the US. I tell them it’s a very good question and that such a time will surely come indeed but it’s just impossible to time it with so many unknowns.”
Alfonso Benito, chief investment officer at asset manager Dunas Capital:
“We are maintaining the calm and analysing the situation as we remain equally invested in fair value. Since we are a long term investors there is no need to panic.”
Stephan Kemper, chief investment strategist at BNP Paribas Wealth Management:
“People’s hopes for getting some positive signs on the tariff front during the weekend have been clearly disappointed. Thus, it starts to feel as if the market is getting into a ‘sell now, ask questions later’ kind of mood. Based on early indications, we’re looking for the worst three-day rolling S&P return since Black Monday 1987. The market is looking for the point of max pain at which the Trump administration and/or the Fed start to blink because – at least for now – this economic slowdown is a voluntarily constructed one.”
Karen Georges, an equity fund manager at Ecofi:
“There were clear signs of capitulation on Friday with a number of long-only investors starting to sell: that’s a key indication. When you look at the VIX, yes it smells like capitulation too. It may feel lke Covid again, but this selloff is man made.”
“We’re getting close to a moment when for long-only equity funds there is nowhere to hide. We’re looking at quality companies like infrastructure operators which are not subject to tariffs. For long-only investors, it’s really important not to capitulate because Trump could make a pivot. The risk is that he makes that pivot, say in 2 months, and by then, the damage extends to a stage when it’s feeding on itself.”
Peter Kiss, Head of Portfolio Management at Amundi Hungary:
“The situation is very fluid and things can change very rapidly, for now we’re assessing the damage and revising our positions, the goal now is to remain calm and try to avoid the falling knives.”
“We were lightly positioned before the crash, but not buying anything for the time being, rather evaluating the economic implications and what sectors or assets could be worth over- or under-weighting later on. We see recession fears strengthening, but at this stage it is still premature to call for an economic recession.”
--With assistance from Macarena Muñoz, Khuleko Siwele, Levin Stamm and Veronika Gulyas.
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