The “America First” trade is unraveling in the sweeping turmoil in global markets, with stocks acutely exposed to the U.S. economy sinking alongside the dollar. As Wall Street’s rebellion against Donald Trump’s tariff war intensifies, traders are rushing into fixed-income havens.
About $2 trillion was erased from the S&P 500, with the gauge down almost 5% Thursday. The Russell 2000 of smaller firms extended its plunge from its 2021 all-time high to 20% on speculation the president’s trade offensive will stunt the American economy. The greenback slid 1.5%, reigniting the debate about its haven reputation during challenging times as the euro, yen and Swiss franc surged. Oil joined a selloff in commodities.
All in, the much-vaunted America-first trade — buying up assets that win when the United States outperforms the rest of the world — is reversing on concern that the steepest increase in American tariffs in a century will hammer economic growth.
That’s driving a fierce rally in global bonds, sending the yield on benchmark Treasurys briefly below the closely watched 4% level. Most other yields also slipped to session lows as money markets priced in a 50% chance of the Federal Reserve delivering four quarter-point rate reductions this year.
Wall Street will face a key test Friday as the jobs report and a speech by Fed Chair Jerome Powell will set the tone for markets worried about the outlook for the world’s largest economy amid a widening trade war.
Trump has embraced tariffs as a tool to assert U.S. power, revive manufacturing at home and extract geopolitical concessions. Economists say the near-term result of his measures will likely be higher U.S. prices and slower growth, or perhaps even a recession.
“This was the worst-case scenario for tariffs and were not priced-into the markets,” said Mary Ann Bartels at Sanctuary Wealth. “If these tariffs stick, the economy is going to slow down. Whether it’s a recession or not, it’s clear that the economy is headed for a slowdown in the US and around the world. There’s no place to hide, but the fixed-income markets.”
The market damage was heaviest in companies whose supply chains are most dependent on overseas manufacturing, including giants Apple Inc., Nike Inc. and Walmart Inc.
Wall Street’s chief fear gauge — the Cboe Volatility Index — hovered near 28, above the 20 level that usually indicates concern among traders.
The yield on 10-year Treasurys fell nine basis points to 4.04%. Bitcoin fell more than 5%.
Recession fears have been rising and that is visible across various asset classes.
Stocks and bond yields are back moving in concert and their correlation is highest in two years. But unlike in 2023 when they were both going up, this time they’re falling, a typical sign that economic growth expectations are being downgraded.
Nomura Securities International Inc. said it expects gross domestic product to expand 0.6% in 2025 after accounting for the new levies on imports, and a key measure of underlying inflation to rise to 4.7%. Barclays Plc economists took a more pessimistic view toward GDP — projecting a 0.1% contraction — and a slightly more optimistic view of inflation, penciling in a 3.7% increase.
“The uncertainty landscape just became a lot longer and a lot wider,” said Michael Purves of Tallbacken Capital Advisors. “Even in a best case scenario — let’s assume that yesterday’s opening salvo was simply an aggressive chess move — the depth and duration of uncertainty has just been substantially increased.”
“I have no doubt that over the near term tariffs will be detrimental to growth,” said Irene Tunkel at BCA Research. “We have gone through the first stage of this calamity and, as I said before, this is bad for financial markets. The first stage is peak uncertainty. The next stage will be downgrades in earnings.”
The United States risks being caught between slowing growth and rising prices as a result of the sweeping tariff plans unveiled Wednesday by the Trump administration, according to the president of Apollo Global Management Inc.
The chances of a recession in the world’s biggest economy have risen to 50% or higher, Jim Zelter said in a Bloomberg Television interview in New York on Thursday. The risk that tariffs accelerate inflation and constrain the Fed’s ability to stimulate growth by slashing rates has also risen materially, he said.
“We’re left to ponder how far the price action can extend from here. At this stage, the more relevant uncertainty is the degree to which the US equity market will sell off,” said Ian Lyngen and Vail Hartman at BMO Capital Markets. “In the event that stocks continue to slide, we anticipate that Treasury yields will do the same.”
Trump’s trade war is likely to reinforce the underperformance of U.S. equities, as tariffs crimp earnings for corporate America, according to global strategists at HSBC including Alastair Pinder.
“We believe this could accelerate the ongoing rotation out of US equities and into international,” they noted.
U.S. tariffs were larger than expected, not priced in, and coming at a bad time, increasing the risk that U.S. stocks will enter a bear market, UBS strategists led by Bhanu Baweja said.
The S&P 500 is at risk of staying below 5,500 — a key psychological threshold that would leave few levels to lure dip buyers, according to technical analysts, who monitor daily averages and other metrics to determine market momentum. Before Thursday, this year’s intraday lows were 5,504.65 on March 13 and 5,488.73 on March 31.
“Market uncertainty is likely to remain elevated in the weeks ahead, as investors consider likely downgrades to consensus US economic and earnings growth forecasts, the risk of a tit-for-tat escalation in tariffs, and the potential scope for tariffs announced to be negotiated down,” said Solita Marcelli at UBS Global Wealth Management. “All of this is likely to mean an extended period of volatility for US equities. Nonetheless, we do believe the market will end the year higher.”
While uncertainty is currently high, Marcelli believes that, at the margin, incremental news flow could become more supportive as we approach the second half of the year.
“Now that the tariffs have been announced, negotiations to soften them can begin,” she said. “Tariff revenue could be used to offset the cost of extending tax cuts. And we would expect the Fed to respond to weakening growth with interest rate cuts.”
Meantime, the dollar’s extended decline in the midst of a global selloff in risk assets has sparked a vigorous debate about whether it has retained its status as a haven during turbulent times, given the homegrown nature of the economic fears roiling macro markets.
Hedge funds have increased their bearish bets on the dollar, mainly versus the yen and the euro, while also bracing for higher volatility into year-end, according to currency traders familiar with the transactions who asked not to be identified because they aren’t authorized to speak publicly.
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