Walloping Stocks as Reciprocal Tariffs Unleashed
Stock market once more encountering a dismal performance, as significant tariffs take effect.
Take a wild ride, investors! Trump's monster-sized "reciprocal" tariffs went live on Wednesday, flipping global commerce upside down, and sending US stock futures plummeting.
These tariffs, reminiscent of the Roaring Twenties, slap enormous taxes across-the-board on a slew of countries, with some tariffs hitting a whopping 50%. The news has left jitters seeping through the financial realm as economies worldwide fear a rugged year ahead. Consumers and businesses will ultimately end up paying for these colossal tariff bills, leaving uncertainty hanging in the air and slowing down hiring and consumer spending.
Tokyo's Nikkei index nose-dived 4%, while the Hang Seng took a 1.5% tumble after a temporary reprieve on Tuesday. The previous day, on Monday, the Hang Seng took a 13% nosedive - the harshest drop for the index since the 1997 Asian financial crisis.
South Korea's benchmark Kospi index drew closer to bear market territory after the country rolled out $1.3 billion in emergency backing for its auto industry amid anxiety over the Trump administration's tariffs. The index lost more than 1% early in the trading day, slipping around 20% from its peak scaled in July 2024.
Taiwanese markets also dipped sharply, while the Shanghai stock market managed a slight gain, an outlier in a pool of crimson Wednesday.
US stock futures dirtied at an alarming rate post-Tuesday, after a bumpy ride that initially appeared like a powerful comeback from several days of steep declines. However, during an afternoon press conference on Tuesday, White House Press Secretary Karoline Leavitt declared that China had missed the deadline to lower a beefy 34% retaliatory tariff imposed on US goods on Friday. In response, the Trump administration nearly doubled its added tariff on China in the morning of Wednesday.
That means all products hailing from China, crossing the US border, will now contend with a minimum 104% tariff. Nations managing to avoid the "reciprocal" tariffs still face a 10% across-the-board tariff that the Trump administration clamped down on last Saturday.
The announcement of new tariffs triggered stocks to plunge in a remarkable flip-flop performance. The worrisome sentiment continued Wednesday morning.
Dow futures sank 750 points, or 2%, while S&P 500 futures drooped 2.2%, with Nasdaq futures wrestling downward 2.5%. The S&P 500 was set to open in bear market territory, heralding a record-breaking slide of 20% from the all-time high the index achieved just seven weeks ago on February 19.
If the US stock market concludes in bear market territory, it would end a huzza-worthy bull run that started during the peak of the inflation crisis in mid-October 2022 - ranking second-fastest in the seven-decade history of the S&P 500, only outpaced by the Covid pandemic.
Crude oil nosedived more than 4% below $57 per barrel, dipping to its lowest levels since February 2021. The benchmark Brent crude also hovered near $60 a barrel. Oil prices plummeted as investors braced themselves for a potential global recession that could snuff out demand for travel, transportation, and shipping – all sectors fuel-dependent.
Instead, investors raced towards conventional safe-havens, such as gold. Gold spiked over 1%, looming close to an all-time high. However, interestingly, US Treasury yields edged upward in recent days as investors cashed out on bonds. The benchmark 10-year yield, which dipped below 4% earlier in the week, suddenly rose above 4.3%.
Typically, in the face of crisis, investors hoard money in long-term bonds, hoping that short-term market problems are eventually resolved in the long run. But the bond market, like the stock market, has been pummelled by extreme volatility in recent days, and some investors are swerving for the exits.
Investors are bracing for a challenging year ahead due to the uncertainty surrounding the impact of reciprocal tariffs on global business. The harsh drop in the Hang Seng index, reminiscent of the 1997 Asian financial crisis, highlights the potential slowdown that these tariffs may cause. The South Korean Kospi index is also approaching bear market territory as a result of these tariffs, signaling a potential slowdown in the economy by 2024. The announcement of new tariffs triggered a significant slide in the US stock market, potentially ending a remarkable bull run that started in October 2022.
