Escalating Trade War Sparks Broad Selloff and Fear of Recession
Escalating Trade War Sparks Broad Selloff and Fear of Recession
By:JJ Kinahan
Historic market shakeup as gold surges, yields spike and stocks slide
- The escalating trade war is increasing volatility in stocks, bonds, commodities and currencies.
- Tariffs are pushing consumer prices sharply higher.
- Weak inflation data and rising loan reserves are signaling the possibility of a possible recession.
Markets endured another turbulent day yesterday as tariffs continued to dominate the news and rattle investors. After a powerful rally on Wednesday, the S&P 500 dropped 3.5%, while the Nasdaq Composite and small-cap Russell 2000 both fell 4.3%, marking the worst performance among sectors. The Dow Jones Industrial Average was also down, shedding 2.5%.
The volatility isn’t limited to equities. Across asset classes, we’re witnessing historic moves. Gold surged to a record high, settling at $3,315.20 per ounce. Meanwhile, 30-year Treasury yields posted their largest weekly gain since 1982, jumping from 4.33% last week to 4.88% in premarket trading. The U.S. dollar extended its losing streak to five days, hitting its lowest level in over a year.
Feeling the effects of the trade war
Driving these market swings is continued escalation in the trade war. On Wednesday, the Trump administration announced a 90-day pause on retaliatory tariffs for countries open to negotiations. However, it also announced an increase in tariffs on Chinese goods to 125%, which was later clarified to be 145% when accounting for an existing 20% levy.
Markets initially rallied on the reprieve but reversed sharply as investors realized the net cost to consumers would rise. Estimates now suggest an annual increase of $4,400 per household, up from $3,800.
China responded by reducing imports of American films and raising tariffs on U.S. goods to 125%. Chinese officials also warned they would not respond to any future U.S. tariff hikes, dismissing them as a “joke.” The implication is that further tariff increases may render trade unviable.
Economic data released yesterday added to the uncertainty. The consumer price index (CPI) and producer price index (PPI) both came in weaker than expected. However, both reports reflect data from March, so the impact of recent tariff actions won’t be seen until future releases.
Quarterly reports begin
Earnings season has kicked off. Wells Fargo (WFC) posted a 16% increase in Q1 earnings, while J.P. Morgan (JPM) beat revenue estimates. Of note, J.P. Morgan significantly boosted loan-loss reserves, signaling growing concern about the economy’s trajectory.
Looking ahead, investors appear fatigued and eager for the weekend. With more earnings reports and key Fed commentary on the docket next week, market participants will continue to monitor rate expectations and broader economic sentiment.
As always, sticking to long-term investing plans remains crucial in times like these.
JJ Kinahan is CEO of tastytrade from IG—which includes tastylive, tastyfx and tastycrypto. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan
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