A selloff in stocks deepened, bonds climbed and oil tumbled to a four-year low as Federal Reserve Chair Jerome Powell signaled the damage of a trade war will be bigger than anticipated, with the potential effects including higher inflation and slower growth. Despite the economic risks from President Donald Trump’s trade war such as China’s decision to retaliate, Powell reiterated a wait-and-see approach on rates. The S&P 500 saw its worst two-day plunge since March 2020 in a sellof that slashed over $5 trillion in value, with the gauge down 6% on Friday. The Nasdaq 100 entered a bear market. Treasury 10-year yields slid three basis points to 3.99%. The dollar rose 1%.
“The action within the market is shouting recession,” said Doug Ramsey, chief investment officer at the Leuthold Group. “And market action itself is very often the final catalyst that pushes you into recession.”
Trump blasted China for retaliating against his sweeping tariff plan and vowed his economic policies “will never change.”Later, the president noted he had a “very productive call” with Vietnam, spurring a rally in firms that have large manufacturing operations in the country, including Nike Inc. and Lululemon Athletica Inc. Megacaps plunged, with Nvidia Corp. and Tesla Inc. slumping over 7%. US-listed Chinese stocks like Alibaba Group Holding Ltd. and Baidu Inc. also tumbled. A gauge of big banks hit the lowest since Aug. 7. The Cboe Volatility Index jumped to the highest since April 2020.
Nasdaq 100 Enters Bear Market
Several forecasters are turning ice cold on US equities, telling investors to refrain from buying the selloff amid the specter of a recession. Bank of America Corp.’s Michael Hartnett told investors to “short” risk assets until Trump pivots away from tariffs and toward tax cuts, higher energy supply, deregulation and an aggressive increase in the debt ceiling. UBS Global Wealth Management’s Mark Haefele cut his rating on US stocks to neutral. The chief executive officer of Roubini Macro Associates, whose doom-laden warnings accompanied key moments of the financial crisis in 2008, predicted that the stock market correction may deepen before investor sentiment then stabilizes as Trump dials down his global trade onslaught. “Even if in the next few weeks it looks like we’re going to start negotiations, and you get a de-escalation, I think the market corrects a little bit more, bottoms out,” Nouriel Roubini said at a gathering of economists and business leaders on the banks of Lake Como in Cernobbio, Italy.
S&P 500 Wipes Out Over $5 Trillion in Two Days
The fastest US stock market selloff since the depths of the Covid pandemic has left valuations looking cheap. But if a recession is inevitable due to the global trade war, the definition of inexpensive becomes relative. JPMorgan Chase & Co. said it now expects the US economy to fall into a recession this year after accounting for the likely impact of tariffs announced this week by the Trump administration. “We now expect real GDP to contract under the weight of the tariffs, and for the full year (4Q/4Q) we now look for real GDP growth of -0.3%, down from 1.3% previously,” the bank’s chief US economist, Michael Feroli, said Friday in a note to clients, referring to gross domestic product. Economists generally expect that tariffs will lift inflation and slow growth, keeping the Fed in wait-and-see mode.