By Sinéad Carew, Lewis Krauskopf and Amanda Cooper
NEW YORK/LONDON (Reuters) -Global investors grappled on Thursday with rising chances of an economic downturn and a sprawling trade war, as they scrambled for safe-haven assets to buffer against fallout from U.S. President Donald Trump’s sweeping tariffs.
Markets were stunned late on Wednesday when Trump announced Washington’s steepest trade barriers in more than 100 years. The move slammed stock markets and the dollar as investors sought safety in assets like bonds and the Japanese yen.
“The size and scope of the tariffs announced exceeded even some of the most bearish forecasts,” said Mona Mahajan, head of investment strategy at Edward Jones. “This is something that markets are starting to realize could have a meaningful impact on both economic growth and obviously inflation.”
S&P 500 companies lost a combined $2.4 trillion in stock market value, their biggest such one-day loss since the emerging coronavirus pandemic ripped through global markets on March 16, 2020.
Investors turned their focus to how other countries would respond to Trump. Possibilities include negotiation, retaliation and steps to protect domestic industries.
Investors said they were bracing for the increasing chance the world economy was moving toward a recession. Some said they were trying to tariff-proof their portfolios with assets that can ride out a recession and higher inflation or stocks of companies that rely less on international trade.
Trump shrugged off the market slide and stood by his tariff decision.
“I think it’s going very well,” he told reporters as he departed the White House for a long weekend in Florida. He predicted “markets are going to boom” eventually.
For months, investors had thought Trump’s tariffs would be relatively worse for economies and markets outside the U.S. Now investors are betting on severe damage to American assets, after Trump unveiled a 10% baseline levy on all U.S. imports and much higher duties imposed on some countries.
Investors fled riskier assets on Thursday, with the S&P 500 index tumbling 4.8%, its biggest drop since June 2020. The Nasdaq Composite dived about 6%, its biggest daily loss since March 2020.
The Cboe Volatility Index, an options-based measure of investor anxiety, closed at its highest level since August 2024.
The dollar weakened to six-month lows against Japan’s yen and the Swiss franc, taking some of the safe-haven sheen off the greenback.
As stocks plunged, global equity long-short hedge funds erased their gains for the year, Goldman Sachs said.
On Wall Street, the biggest drags were from highly valued megacap investor favorites. Apple slumped over 9%, while artificial intelligence chip leader Nvidia sank nearly 8%.
Shares of U.S. banks tumbled to multi-month lows on fears Trump’s tariffs would result in a recession and a slowdown in consumer spending that could hurt earnings.
Fed funds futures rallied as investors priced in more interest rate cuts by the Federal Reserve this year. Investors bought up U.S. Treasuries, with benchmark 10-year yields falling to just above 4%, their lowest level since mid-October.
“Coming into this year, there was this assumption that this administration would be brilliant for the U.S. economy and difficult for the rest of the world,” said Hugh Gimber, global market strategist at J.P. Morgan Asset Management in London. “It’s increasingly evident this policy mix in the U.S. is more difficult for the U.S. itself.”
The Trump administration has said the base 10% tariffs will go into effect on April 5 and the higher rates on April 9. Tariffs of 25% on vehicle imports took effect at midnight. The new levies include a 34% tariff on imports from China, 46% on Vietnam, 24% on Japan and 20% on Europe.
Retaliation against Trump’s tariffs is likely, said Justin Onuekwusi, chief investment officer at St James’s Place, “but it’s clear countries will think about how to retaliate in a politically astute way.”
“Significant retaliation could lead to a tariff ‘spiral of doom’ that could be the growth shock that drags us into recession.”
Trump’s tariffs also hit markets outside the U.S., although to a lesser extent. European shares fell with the STOXX 600 down 2.6%. The euro was up 1.7% against the dollar.
European Union chief Ursula von der Leyen described the tariffs as a major blow to the world economy and said the 27-member bloc was prepared to respond with countermeasures.
In China, which had braced for tariffs and where most revenue is earned locally, selling in stocks and the currency was also more contained.
“Investors are clearly concerned about retaliation by other governments that could lead to a global recession,” Oliver Pursche, senior vice president at Wealthspire Advisors in New York. “But we’ve also learned just over the last couple of months… on-and-off again tariffs are not unusual for (Trump). So we’ll have to see how long the tariffs stay in place.”
Even before Thursday’s selloff, tariff jitters had hit markets hard. In mid-March the S&P 500 confirmed a correction, a drop of 10% from a recent high. With Thursday’s dive, the index ended down over 12% below its February record high.
“People were talking earlier about whether clarity would boost the market,” said Jeanette Garretty, chief economist at Robertson Stephens.
“But now you have clarity, and no one likes what they see.”
(Additional reporting by Lewis Krauskopf and Stephen Culp in New York, Steve Holland in Washington, Lisa Pauline Mattackal in Bengaluru, Noel Randewich in San Francisco, Amanda Cooper, Dhara Ranasinghe and Lucy Raitaino in London; Graphics by Pasit Kongkunakornkul; Editing by Paritosh Bansal and David Gregorio)
