Trump’s tariffs fuel stock market meltdown

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Market forecasts are being slashed as the selloff sparked by U.S. President Donald Trump‘s tariff onslaught shows no signs of abating.

After Trump’s “Liberation Day” last week, the S&P 500 suffered its worst two-day drop since March 2020, wiping out over US$5 trillion in value and pushing the Nasdaq 100 into a bear market.

Stocks around the world were plunging again this morning. Asian markets suffered their worst day since 2008 and Europe’s Stoxx 600 was down 5 per cent. U.S. futures are signalling another day of heavy selloffs with the S&P 500 down 3.5 per cent.

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If that holds out it will be the largest three-day fall in the index since the Global Financial Crisis, pushing it into bear market territory, said analysts.

“This is an epic economic and market event similar to 1971 and the end of the gold standard except with immediate negative consequences,” Bill Gross, the former chief investment officer of Pacific Investment Management Co., told Bloomberg last week.

“Investors should not try to ‘catch a falling knife.’”

Former Treasury Secretary Lawrence Summers echoed the sentiment Sunday.

“This was the fourth largest two day move since the second World War,” he wrote in a post on X. “The other three were the 1987 crash, the 2008 financial crisis, and the COVID pandemic. A drop of this magnitude signals that there’s likely to be trouble ahead, and people ought to just be very cautious.”

At this point few are recommending “buying the dip.”  Bank of America strategist Michael Hartnett said investors should “short” risk assets until Trump moves away from tariffs on to tax cuts, Bloomberg reports. If there is a recession, investors should wait until the S&P 500 sinks to between 4,800 and 5,000 point to jump back into risk. The index closed at 5,074.08 Friday.

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Analysts say what will be crucial in the next few days is whether the White House tries to find “an elegant off-ramp or doubles down.”

Saturday the United States’ 10 per cent baseline tariffs on all countries went into effect and on Wednesday those are set to rise as the higher reciprocal tariffs take hold. China’s 34 per cent retaliatory tariffs are due on Thursday.

Over the weekend Trump and his administration showed few signs of backing down. The president said on Air Force One: “Forget markets for a second — we have all the advantages,” and “sometimes you have to take medicine to fix something.”

Still many remain hopeful that the man known for “The Art of the Deal” will find a way to ease the pressure. More than 50 countries called the administration over the weekend seeking talks.

Capital Economics expects the president to quickly announce a few deals that will reduce the tariffs on the hardest hit countries, followed by more agreements in the months to come.

“We suspect that even the pugnacious Trump must understand he’s gone too far this time,” said Paul Ashworth, Capital’s chief North American economist.

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“Once it becomes clear that he is willing to accept relatively minor concessions in exchange for scaling back those tariffs, equities should rebound.”

The alternative is a president who doubles down, carrying out his threats to impose even stiffer tariffs on countries that retaliate with penalties of their own.

If that happens tanking stock markets will soon be followed by a collapse in household and business confidence, said Ashworth, pulling the U.S. economy into recession within a few months.

“A U.S. Administration that doubles down will have immense global implications for 2025 and the years and decades ahead,” wrote Jim Reid, global head of macro and thematic research at Deutsche Bank.

“At the moment there are few signs they are backing down which will likely signal more market turmoil ahead. Rarely if ever have the next few days been so important.”

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