On Monday, US stocks experienced extreme volatility, with dramatic fluctuations as traders sought clarity regarding President Donald Trump’s tariff policies. The day began with significant losses as concerns mounted over how Trump's sweeping tariffs could disrupt the global economy and hinder economic growth. Initially, US stocks opened in bear market territory, but surged shortly thereafter on rumors that the Trump administration might consider pausing the tariffs for several months.
However, the optimism was short-lived. A White House official quickly dismissed the rumors, labeling any suggestion of a tariff pause as “fake news.” This announcement dashed hopes for negotiations with trading partners, including the European Union (EU), after Trump indicated he was contemplating an additional 50% tariff on China. Consequently, the Dow Jones Industrial Average, which had surged nearly 900 points, plummeted back down, closing down 840 points, or 2.2%. The broader S&P 500 index fell by 1.7%, while the Nasdaq Composite dropped by 1.5%.
The wild swings in the market highlight the intense desire among investors for Trump to pause his trade war. US stocks initially rebounded off their lows, even briefly turning positive on the rumors of a tariff pause, only to reverse course as traders realized no official announcements had been made. Art Hogan, chief market strategist at B. Riley Wealth Management, stated in a CNN interview, “The stock market vigilantes have spoken loudly that we need rational thought mixed in with this trade policy. And there is none so far.”
These oversold markets, desperate for good news, are particularly susceptible to volatile swings that can quickly reverse. The S&P 500 hit its low of the day at 9:43 a.m. ET, followed by a surge fueled by rumors of a tariff pause, peaking at 10:17 a.m. ET. Within just over 30 minutes, the S&P 500 witnessed an astonishing 8.5% increase, showcasing the market's erratic behavior.
A glimmer of hope arose when Ursula von der Leyen, a leading EU official, announced that the bloc was “ready to negotiate” with the United States, proposing to eliminate tariffs on US industrial goods. However, as stocks opened, the S&P 500 briefly dipped into bear market territory, defined as a 20% decline from recent peaks, before making a recovery.
This downturn in US stocks followed a significant sell-off in Asia and Europe, with the S&P 500 having hit a record high just a few weeks prior. If the index ends the day in bear market territory, it would mark one of the fastest transitions from peak to bear market in history, surpassed only by the 2020 Covid-19 pandemic.
Despite the turmoil, some investors may see this as a buying opportunity. With stocks trading at a historically low price-to-earnings ratio of 15 times future earnings projections, a rebound could be on the horizon if investors perceive stocks as oversold. James Demmert, chief investment officer at Main Street Research, expressed optimism, saying, “We are getting close to a bottom.”
However, the chaotic market conditions could send a mixed message to President Trump regarding his tariffs. Some analysts suggest that if the stock market begins to recover from its declines, Trump may feel emboldened to maintain his current trade policies. Ed Yardeni, president of Yardeni Research, controversially claimed, “We need this market to crash — to keep the pressure on the administration.”
As the markets fluctuated, Trump took to social media, announcing his readiness to impose new 50% tariffs on China if Beijing does not retract its retaliatory tariffs by Tuesday. He also indicated that discussions with China that had been requested would be canceled, while negotiations with other countries would proceed immediately.
In contrast, von der Leyen emphasized the EU's willingness to negotiate, asserting that the bloc had made offers to eliminate tariffs on industrial goods well before Trump’s latest announcements. She highlighted the EU's longstanding commitment to “zero for zero” agreements with nations that have strong automotive sectors.
The Cboe Volatility Index (VIX), often referred to as Wall Street's fear gauge, surged to levels not seen since the onset of the Covid-19 pandemic, reflecting investor anxiety regarding future market movements. CNN’s Fear and Greed Index also plummeted to its lowest point this year.
As Trump continues to navigate trade negotiations, he has attempted to frame potential recession fears as potentially beneficial. For instance, US oil prices recently fell below $60 for the first time since April 2021, as fears of diminished global demand surfaced. Additionally, falling Treasury yields have led to lower consumer rates tied to government bonds, although Federal Reserve Chair Jerome Powell indicated that the central bank is not in a rush to lower rates.
The uncertainty surrounding Trump's trade policies has the potential to transform a bull market into a bear market more swiftly than any previous administration in modern history. If the stock market closes in bear territory, it would set a record for the earliest transition from a bull to a bear market in the history of the S&P 500.
Market analysts have expressed concerns about the inconsistencies in the Trump administration's messaging regarding tariff negotiations. Goldman Sachs warned that if Trump follows through on his threats of increased tariffs, it could lead the US and global economies into a recession. Furthermore, JPMorgan CEO Jamie Dimon cautioned that Trump's tariffs would elevate prices and impede economic growth.
In addition to the baseline 10% tariffs that took effect recently, Trump has already introduced tariffs on various sectors, including autos, steel, and aluminum, with further tariffs on auto parts set to be implemented by May 3. The administration has also threatened tariffs on a range of other products, including lumber and pharmaceuticals. The decisions Trump makes regarding these tariffs will be crucial in determining whether the economy faces a downturn.
As the situation continues to develop, it remains critical for investors to stay informed about the evolving landscape of US trade policies and their implications for the market.
