Worst Stock Meltdown Since Covid Deepens as Recess

Worst Stock Meltdown Since Covid Deepens as Recession Odds Soar

By Denitsa Tsekova, Esha Dey, Isabelle Lee and Liz Capo McCormick

04/04/2025 15:45:09 [BN]

Bloomberg

In every corner of the financial markets, from stocks to bonds to commodities, investors sent President Trump the same unmistakable message: The trade war he unleashed is threatening to set off a worldwide recession — and fast.

With China retaliating less than 48 hours after the US president rolled out his punitive tariffs, traders are pricing in what increasingly looks like a negative-feedback loop as Trump shows little signs of backing down.

The frantic two-day selloff unleashed by Trump’s decision left little unscathed, hammering stock prices in Asia, Europe and the developing world, and prompted investors to race into havens like government bonds.

It hit the US hardest, worsening Friday after Federal Reserve Chair Jerome Powell said the trade-policy shift is likely to slow growth and spur inflation — a vexing combination that could prevent the central bank from cutting interest rates deeply enough to offset the toll.

As traders dialed back rate-cut bets, the S&P 500 Index tumbled 6%, capping the steepest two-day slide since the pandemic hit the US in March 2020 and wiping out some $5 trillion of value. The tech-heavy Nasdaq 100 also posted a similar drop, leaving it down more than 20% from its mid-February peak.

But the impact extended well beyond the equity markets. Oil tumbled on speculation demand will slow. The cost to protect investment-grade debt against default surged by the most since the regional banking crisis of 2023. And government bonds ralliedas investors rushed in.

“We are rapidly headed towards recession,” said Peter Tchir, head of macro strategies at Academy Securities. “The world was prepared for ‘reciprocal tariffs.’ Whatever the abomination that was launched at the Rose Garden was, it is a disaster — mostly for the US, but also for the global economy.”

US stocks started the week on a strong note, advancing on speculation that Trump’s long-awaited plan would not be as aggressive as he had indicated.

But those hopes were dashed on Wednesday when he rolled out tariffs on some 60 countries, including China and the European Union, marking a major pullback from the steady growth in cross-border trade that has powered the global economy for the last several decades. It also put him at odds with virtually every country in the world, raising the stakes for the US, which relies on investors abroad to help absorb an ever-rising supply of its debt.

Wall Street strategists and economists swiftly started revising their forecasts downward, anticipating a shock that could upend a US economy that has been surprisingly strong since the pandemic. Traders brushed aside the latest evidence — a Labor Department report that showed an unexpectedly jump in hiring last month — seeing it as irrelevant given that the outlook has shifted significantly in a matter of days.