(Bloomberg) — Fear engulfed Wall Street again as US-China trade tensions escalate, sparking a plunge in stocks, the dollar and oil while bond havens misfire anew in the latest sign of disorder in the financial system.
A day after the biggest stock-buying wave in five years, assets tied to the economic cycle are sinking again. Traders are rushing to game out how the effective freezing of Chinese trade will impact corporate earnings, economic growth and new hiring. The S&P 500 sank about 4.5%. Longer-term Treasuries tumbled, with 30-year yields up nine basis points to 4.8%. The dollar sank toward the lowest since October.
Market euphoria flipped back to unease on concern an escalation of the trade war between the world’s two biggest economies will bring lasting damage to global growth. US tariffs on imports from China now total 145% after the latest hike, according to a White House official.
Subscribe to the Stock Movers Podcast on Apple, Spotify and other Podcast Platforms.
“Investors are sobering up and realizing that the US-China ‘food fight’ will probably get worse before it gets better,” said Michael Bailey at FBB Capital Partners. “We’re waking up to the fact that a 10% base tariff will sting, 90 days could fly by and then the pain of higher tariffs could return, and China is fighting back hard.”
Just a day after financial markets cheered Trump’s decision to delay some of his tariff plans, the selloff in riskier corners of the market suggests growing skepticism that trade talks will be wrapped up in a timely manner, despite White House National Economic Council Director Kevin Hassett saying the US is “well advanced” in its discussions with economic partners.
The first signs of a slowdown in global trade are already emerging as companies around the world hit their own pause button on orders and he continues to escalate his trade war with China. If anything, Trump is extending the uncertainty that has already begun to drag on business and consumer sentiment.
“We still believe the anxiety around tariffs are alive and well. Volatility works in both directions — down and up. The path forward likely includes more market swings as we do not have a conclusion. In fact, we have the opposite, a likely extension of the tariff negotiation process,” said Nathan Thooft at Manulife Investment Management.
Trump’s pledge to pause tariffs on some trading partners on Wednesday had ignited the biggest wave of buying Wall Street has seen since 2008. After narrowly avoiding a bear market, the S&P 500 staged a historic bounce from a selloff that wiped out trillions from global share prices amid the specter of a full-blown trade war that fueled fears of a US recession.
“The Trump administration’s stance has evolved from an all-out trade war against everyone, to a concentrated trade war against China,” said Nicolas Oudin of Gavekal Research. “Most investors believe that China shot itself in the foot by retaliating. The view from Beijing is different. Many in China read the ‘Trump fold’ as a sign of US weakness, and therefore as a validation of China’s decision to escalate.”
The staggering US tariffs on China have triggered a tit-for-tat trade war that has unnerved global financial markets.
“Nothing has been done to make investors feel a recession is less likely,” said Chris Murphy, co-head of derivatives strategy at Susquehanna/
Trump is imposing a 125% charge designed to both counter America’s trade deficit with China and punish Beijing for retaliating against US import taxes. The number, published in a White House memo Thursday, comes in addition to a 20% levy put into place earlier this year over China’s role in fentanyl trafficking.
“Tariff-driven inflation is still coming as a result of the trade war, even if the immediacy of the impact has been lessened,” said Vail Hartman at BMO Capital Markets. “The extent of the flow-through of higher tariffs into realized inflation remains an open question – one that isn’t likely to be resolved until well beyond the 90-day pause window.”
While data Thursday showed US inflation cooled broadly in March, the data was calculated prior to widespread levies that risk contributing to price pressures. That may change in coming months as Trump’s higher levies filter through the economy. And price declines for services like hotel stays and airfares may be a warning sign that some consumers are cutting back on discretionary spending
“Healthy drop in inflation or big drop in demand?” said Bret Kenwell at eToro. “At the end of the day, we do need to see lower inflation to justify lower rates from the Fed and ease the burden on consumers. However, getting lower inflation due to a material drop in economic activity — and thereby jeopardizing the economy — isn’t the best route to take.”
Meantime, a growing chorus of Federal Reserve officials have raised concerns that aggressive trade policies could lead to a more lasting increase in inflation. US central bankers have signaled they’re not in a hurry to lower borrowing costs further, instead preferring to wait and see how changing government policies impact the economy before adjusting rates.
If history is any guide, in the 16 times the US stock benchmark has dropped 15% or more at any point in a year, like it had before the rally, the S&P 500 has only recovered to end the 12-month period positive on three occasions, according to data compiled by Ryan Detrick at Carson Group.
In corporate news, big tech CarMax Inc. backed away from the timing of its financial goals, joining a growing list of companies indicating that uncertainty around a trade war is making long-term planning difficult. Novavax Inc. plunged after US Health and Human Services Secretary Robert F. Kennedy Jr. raised doubts about the efficacy of its Covid vaccine.
Some of the main moves in markets:
Stocks
-
The S&P 500 fell 4.4% as of 12:52 p.m. New York time
-
The Nasdaq 100 fell 5.1%
-
The Dow Jones Industrial Average fell 3.7%
-
The MSCI World Index fell 1.9%
-
Bloomberg Magnificent 7 Total Return Index fell 6%
-
The Russell 2000 Index fell 5.1%
Currencies
-
The Bloomberg Dollar Spot Index fell 1.4%
-
The euro rose 2.3% to $1.1198
-
The British pound rose 1.1% to $1.2961
-
The Japanese yen rose 2.2% to 144.44 per dollar
Cryptocurrencies
-
Bitcoin fell 4.3% to $79,591.37
-
Ether fell 9.6% to $1,511.88
Bonds
-
The yield on 10-year Treasuries advanced three basis points to 4.37%
-
Germany’s 10-year yield declined one basis point to 2.58%
-
Britain’s 10-year yield declined 14 basis points to 4.64%
Commodities
–With assistance from Emily Graffeo, Sujata Rao, Margaryta Kirakosian and Anand Krishnamoorthy.
More stories like this are available on bloomberg.com
©2025 Bloomberg L.P.
