(Bloomberg) -- The S&P 500 Index declined to the lowest level in 11 months, slashing $5.4 trillion in market value in just two sessions as Federal Reserve Chairman Jerome Powell said the Trump administration’s tariffs “could have a persistent impact on inflation.”
The S&P 500 closed 6% lower in its worst day since March 2020, with all but 14 members in the red. The Nasdaq 100 plunged 6.1%, entering a bear market. The swiftness of the gauge’s 20% drop from its February peak is rivaled only by the pandemic meltdown in 2020 and 2000’s dot-com implosion. All 11 sectors in the S&P 500 declined. Nvidia Corp. and Apple Inc. fell at least 7%, while Tesla Inc. lost 10%.
Speaking at the Society for Advancing Business Editing and Publishing Conference in Arlington, Virginia, Powell said that economic impact of President Donald Trump’s tariffs will likely be larger than expected. He also stressed the need for the Fed to keep its inflation expectations anchored, which would indicate that interest rate hikes may not be imminent. Earlier, Trump pressured Powell to cut rates now.
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The S&P 500 has lost 11% the past two sessions in the steepest two-day slide since March 2020, when the Covid pandemic pushed the global economy into lockdown.
“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.”
The rout came as China imposed a 34% tariff on all American imports starting April 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 to above 45 — 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 labor market before the economy gets hit by widespread tariffs.
“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.
Now, traders are boosting their expectations for the Fed to cut interest rates this year. Money markets are fully pricing four quarter-point reductions by year-end, with a more than 50% 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% earlier in the session, the lowest since before election day.
The S&P 500 is down more than 17% from its February record after declining for six weeks in the past seven. Fund managers yanked $4.7 billion out of US stocks in the week through April 2 in the second week of outflows, data compiled by EPFR Global and Bank of America show.
Friday’s losses follow Trump’s drastic new trade tariffs, which ignited widespread recession fears.
The trade fight weighed hard on shares of energy and financial companies Friday, including Baker Hughes Co., which plunged 13%, and insurer MetLife Inc. which fell 9%. Tech stocks also got hit. The Philadelphia Semiconductor Index slid 7.6% following Thursday’s 9.9% loss, as Micron Technology Inc. dropped 13% and Marvell Technology Inc. lost more than 11%.
Meanwhile, shares in companies that have large manufacturing operations in Vietnam, including Nike Inc. and Lululemon Athletica Inc., jumped after Trump said he had a “very productive call” with the country’s leader.
Trump on Wednesday imposed the steepest American tariffs in a century, saying he will apply a 10% 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 signaling that investors see both economic and profit growth slowing because of the trade war,” said Adam Sarhan, founder of 50 Park Investments.
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% gain through 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’re sitting here it is under review and has been under review for awhile,” John Stoltzfus said on Bloomberg Television Friday. “The reality has been until we got these rather surprising unpleasant levels of tariffs and the market’s reaction, we’re naturally going to have to take a look and sharpen our pencils, so to speak.”
