Market Insights

Stock buyers are going on strike as President Trump’s tariff plans cause unprecedented uncertainty and fear.

The S&P 500 plunged 9.1 percent between Friday, March 28, and Friday April 4. It was the biggest weekly drop since the coronavirus pandemic triggered mass lockdowns and layoffs. All of the drop came on Thursday and Friday after the administration stunned the world with the highest import duties since the Great Depression.

Aside from their surprisingly high levels, the method of calculation baffled investors and economists. Key textile producers like Vietnam and Cambodia, with little ability to import more U.S. goods, were slammed with rates above 40 percent. That threatens to boost prices of clothing — a category that’s been consistently deflationary for decades.

“Tariffs are highly likely to generate at least a temporary rise in inflation,” Federal Reserve Chairman Jerome Powell said, adding that “the effects could be more persistent.”

In other words: Don’t expect the Fed to cut rates just because stocks are falling.

Nasdaq-100, daily chart, with select patterns and indicators.

And fall they did. Here are some more facts on the selloff:

• The Nasdaq-100 dove 9.8 percent. The Dow Jones Industrial Average fell 7.9 percent and the Russell 2000 cratered 9.7 percent.
• Every major sector fell at least 2.4 percent.
  • Economically sensitive groups like energy, technology and financials crashed more than 10 percent.
  • “Safe havens” like consumer staples and utilities fell the least.
• Some 145 members of the S&P 500 hit new 52-week lows. It was the most since October 2022, according to TradeStation Data.
• Only 18 of the index’s 500 members climbed.
• Meanwhile, 18 index members fell at least 20 percent.
• 40 percent of the index fell at least 10 percent.
• The American Association of Individual Investors said almost 62 percent of respondents in their weekly poll were “bearish.” It was the highest reading since March 2009, during the Global Financial Crisis.

Buyers on Strike?

The high tariffs seem to create several risks.

First, they threaten to rekindle inflation, two weeks after policymakers got more hawkish on price pressures. That could prevent rate cuts, as Powell seemed to hint on Friday.

Second, they threaten corporate earnings. Companies like Nike (NKE), Lululemon Athletica (LULU) and Apple (AAPL) have major supply chains in Asia. Executives may need to accept smaller profit margins or raise prices, which could reduce sales. Either way, they add to negativity as companies start releasing quarterly results this week.

Third, will other countries retaliate? China responded with a 34 percent tariff on U.S. goods. Even if few others follow, American brands may face backlash in global markets.

Fourth, recession could be more likely. J.P. Morgan sees a 60 percent chance of a global recession this year, up from its earlier estimate of 40 percent. (Recessions also tend to hurt profits.) The bank additionally sees tariffs boosting inflation.

Stocks traded at historically high multiples before the selloff. The new trade policies may threaten earnings, which could mean they’re still relatively expensive based on fundamentals. That uncertainty could make investors reluctant to risk capital yet. Instead, buyers may be “on strike” — even if it’s unofficial.

Armageddon, Purgatory and Recession

Tariffs hurt “the hearts and lungs of the supply chain” for large tech stocks, Wedbush analyst Dan Ives said in an interview. “You’re going to have 5-10 percent growth cuts off the board … it’s an economic Armageddon that’s been unleashed.”

“We moved from a soft landing very quickly into a stagflationary purgatory,” Former Pimco economist Paul McCulley told CNBC. He added that the new reality will make policymakers less likely to cut interest rates because of increased uncertainty.

“This does indeed raise the likelihood of a recession,” Apollo Global economist Torsten Slok said. He noted businesses were already planning to slow investment and consumer sentiment was weakening.

Administration officials like Treasury Secretary Scott Bessent and economic adviser Kevin Hassert mostly downplayed worries about the selloff in weekend media appearances.

Charting the Market

Last week’s selloff represented a major acceleration of the downtrend that began in late February. Prices tore through potentially important lows from August and September, returning to levels from early May.

Futures trading on Sunday evening suggested indexes may drop even further to zones from early 2024.

That could focus attention on the April low of 4954 and the 2022 high of 4819.

Chart watchers may also worry the 50-day moving average will drop below the 200-day MA. Such a “death cross” may suggest the long-term trend has turned bearish.

Next, Cboe’s volatility index (VIX) ended last week at 45.31. It was the highest close since April 2020, although the index briefly reached higher levels in August.

S&P 500, daily chart, with select patterns and indicators.

The Week Ahead

Other news events last week were mixed. Job growth surprised to the upside and initial jobless claims were lower than expected, suggesting the labor market is still strong. On the other hand, the Institute for Supply Management’s manufacturing index missed estates as new orders weakened and prices surged.

OPEC+ also surprised traders by increasing oil supplies more than planned. Crude oil plunged to multiyear lows as a result.

This week brings some inflation data and the start of earnings season. Unexpected announcements from the White House or other governments could also impact sentiment.

The only scheduled event today is a speech by Fed governor Adriana Kugler.

Nothing important is slated for tomorrow.

Wednesday brings earnings from Delta Airlines (DAL), crude oil inventories and minutes from the last Fed meeting.

The consumer price index (CPI) inflation report at 8:30 a.m. ET on Thursday may be the most important report of the week. Initial jobless claims are also due.

JPMorgan Chase (JPM), Wells Fargo (WFC) and Morgan Stanley report quarterly results on Friday morning. The producer price index will be released as well.