Last Thursday, U.S. financial markets took a historic tumble. The Dow Jones Industrial Average and the S&P 500 experienced their biggest drops in five years. On Aug. 1, 2019, President Donald Trump announced his newest tariff plan, extending the new baseline rate of 10% to all imported goods from every country. This announcement precipitated historic drops in the public markets. The announcement spooked investor confidence and resulted in a global market sell-off.
The Dow lost about 4% and the S&P 500 was down 4.8%. The technology-laden Nasdaq Composite suffered an even deeper drop, sinking almost 6%. These movements had a profound impact on market sentiment. The Dow nose-dived 2.5% for the week, as fears that the tariffs will hurt the economy gained steam.
Analysts predict that if Trump’s tariff policy proceeds as outlined, the likelihood of a global recession could soar to 60%. Bruce Kasman, chief economist at JPMorgan, emphasized the potential repercussions, stating, “We thus emphasize that these policies, if sustained, would likely push the [U.S.] and possibly global economy into recession this year.”
Global markets responded angrily to the announcement, with many countries at risk of having to pay much higher duties. This wavering market has made investors turn to safer bets in sectors. Of course, not all companies are suffering—consumer staples are experiencing large gains, with Lamb Weston, a major potato producer, up 10% just Thursday. The firm has been riding high on fiscal third-quarter results that blew consensus estimates out of the water.
The small-cap focused Russell 2000 index succumbed even further, dropping more than 6%. In fact, it has now clearly crossed into bear market territory, generally defined as a drop of at least 20% from its high. This was a concerning milestone for investors as it represented a significant worsening of market distress.
Some sectors flourished during this chaotic period. And utilities, particularly defensive sectors like utilities, were the stars of the week. Exelon Corporation (NYSE:EXC) was the week’s biggest gainer at 5.6%. The company’s earnings and revenue guidance surpassed Wall Street’s expectations.
Market observers noted that when turbulence hits financial markets, investors often gravitate towards what they know best: groceries and utilities. Michael Arone, an investment strategist, remarked on the situation: “The Trump administration may be playing a game of chicken with trading partners, but market participants aren’t willing to wait around for the results.”
The last few months’ bear market has not spared any of the broader indices. Larger tech stocks have taken major hits as a consequence. The “Magnificent Seven” stocks – the ones that led the market to new highs in 2023 and 2024 – got crushed. Collectively, they lost over $1 trillion in combined market value over this drop.
Thursday’s sell-off came just one day after the worst day for each of the major indexes since 2020. The Nasdaq and S&P 500 are headed for their worst weekly results since last September 2024. To add insult to injury, they are currently on their sixth down week in the past seven.
As the markets continue to react to evolving economic policies and uncertainties, traders remain cautious about potential impacts on growth and stability. The recent political turmoil reflects the razor-thin line between consumer confidence and politics.