The US stock market slammed into stark volatility as fears about potential tariffs discouraged investor faith. On a blood-red day characterized by wild swings, the DJIA closed down 0.9%, a poor indicator of investor sentiment at best. The S&P 500, an index of 500 of the largest companies in the United States, was down roughly 0.2%. It even briefly fell over 20% from its peak hit in late February. The drop-off is alarming. That means the index has wiped out over 10% of its total value over the course of just three days!
The S&P 500’s current trading levels mirror those seen about a year ago, highlighting the steep drop in market performance. What analysts are most worried about is the potentially cataclysmic impact tariffs could have on worldwide economies. That chaotic trading caused some of the most violent market moves since the onset of the Covid-19 pandemic. Shares swung wildly, moving from deep in the red to green on a daily basis.
Howard Silverblatt, a widely followed senior index analyst at S&P Dow Jones Indices, said in a recent missive lamenting this weird market move. He said, “Whoa, that’s big!” He noted that in his more than four decades on Wall Street, he has witnessed such few swings. The speed of progress in only two years has been nothing short of amazing.
Meanwhile in Washington, President Donald Trump has taken a hard-line stance toward international trade. He is currently making headlines by threatening to impose a shocking 50% tariff on all imports from China. He rejected appeals to postpone the import taxes that began last Wednesday. He then suggested that some tariffs would be more or less likely to be made permanent as part of a deal and negotiation than others.
US Treasury Secretary Scott Bessent opened negotiations with Japan. Mr. Kerry is hopeful that these conversations can be had with other countries, too. Meanwhile, the White House revealed that over 50 countries have reached out to discuss trade matters amid the escalating tariff situation.
Investor sentiment is still shaky as they are trying to understand what these tariffs mean. Russ Mould, investment director at AJ Bell, highlighted the underlying fears among investors, saying, “Fundamentally, investors are worried about a big hit to corporate [profits] and a massive slowdown in economic growth.” This sentiment echoes the frustrations voiced by Mike Mussio, president of FBB Capital, who characterized the situation as “frustrating for investors” and referred to it as “kind of an unforced error in terms of policy.”
Potentially even more important, markets are wildly overreacting to all these developments. Analysts caution that high volatility could be a new normal in the trading environment. National and international economic trends are inextricably tied to our trade policies. As a result, the investor community will be watching any new pronouncements by the administration with great interest.