Stock Sharply Lower on Concern US Trade War Will Upend the Global Economy

The S&P 500 Index ($SPX) (SPY) today is down -4.42%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -3.72%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -5.11%.  June E-mini S&P futures (ESM25) are down -4.10%, and June E-mini Nasdaq futures (NQM25) are down -4.78%. 

Stock indexes are sinking today, with the S&P 500, Nasdaq 100, and the Dow Jones industrials sliding to 6-1/2 month lows.  Stocks are plunging today because of concerns that President Trump's trade policies will push the US and perhaps global economies into recession.  Late Wednesday, President Trump announced reciprocal tariffs that were worse than feared, hammering stocks and the dollar and prompting a risk-off mood in asset markets. The plunge in stocks has fueled a flight to safety into government bonds, with European government bond yields falling to 4-week lows and the 10-year T-note yield dropping to a 5-1/2 month low.  Stocks extended their losses today after the US Mar ISM services index fell more than expected to a 9-month low.

President Trump said Wednesday the US will impose at least a 10% tariff on virtually all countries, with higher reciprocal rates on some 60 nations. The new tariffs will be implemented in virtually all countries starting on April 5, with the higher rates implemented on April 9.   Also, Treasury Secretary Bessent said there is no room for negotiations.  Specific industries, including steel and automobiles, are exempt from the new rates, and Canada and Mexico are also exempt from the new tariffs and will be subject to the previously announced 25% tariffs. However, China will be charged a 34% reciprocal tariff rate, bringing total tariffs on China up to 67%.  The EU will be charged a 20% reciprocal tariff, bringing total tariffs on the EU up to 39%.  Meanwhile, Japan will be charged a 24% reciprocal tariff, bringing total tariffs on Japan up to 46%.

Weekly US labor market news is mixed.  Weekly initial unemployment claims unexpectedly fell -6,000 to a 7-week low of 219,000, showing a stronger labor market than expectations of an increase to 225,000.  However, continuing claims rose +56,000 to a 3-1/3 year high of 1.903 million, above expectations of 1.870 million, showing it has become more difficult for out-of-work people to reenter the workforce.

The US Feb trade deficit eased to -$122.7 billion from -$130.7 billion in Jan, narrower than expectations of -$123.5 billion.

The US Mar ISM services index fell -2.7 to a 9-month low of 50.8, weaker than expectations of 52.9.

Stocks have been under pressure over the past month due to fears that US tariffs will weaken economic growth and corporate earnings.  On March 4, President Trump imposed 25% tariffs on Canadian and Mexican goods and doubled the tariff on Chinese goods to 20% from 10%.  Last Wednesday, President Trump signed a proclamation to implement a 25% tariff on US auto imports, effective today.  The tariffs will initially target vehicles fully assembled outside the US and, by May 3, will expand to include automobile parts made outside the US.  Mr. Trump said the tariffs were "permanent," and he was not interested in negotiating any exceptions.

Market attention this week will include reaction to President Trump's tariff plans.  On Friday, March nonfarm payrolls are expected to increase by +138,000, and the March unemployment rate is expected unchanged at 4.1%.  Also, March average hourly earnings are expected +0.3% m/m and +4.0% y/y, unchanged from February.  Finally, on Friday, Fed Chair Powell is scheduled to speak to the Society for Advancing Business Editing and Writing Conference on the economic outlook.

The markets are discounting the chances at 32% for a -25 bp rate cut after the May 6-7 FOMC meeting.

Overseas stock markets today are lower.  The Euro Stoxx 50 dropped to a 2-month low and is down -3.23%.  China's Shanghai Composite Index closed down -0.24%.  Japan's Nikkei Stock 225 sank to a 7-3/4 month low and closed down sharply by -2.77%.

Interest Rates

June 10-year T-notes (ZNM25) today are up +1-10/32 points.  The 10-year T-note yield is down -11.2 bp to 4.019%.  June T-notes today soared to a 5-3/4 month high, and the 10-year T-note yield tumbled to a 5-1/2 month low of 3.997%.  T-notes are rallying today on concerns President Trump's reciprocal tariffs will drive the US economy into recession, prompting the Fed to continue cutting interest rates.  Also, today's selloff in global equity markets has fueled safe-haven demand for government debt.  In addition, today's -6% plunge in crude oil prices to a 2-week low has lowered inflation expectations and is supportive for T-notes

European bond yields today are falling.  The 10-year German bund yield dropped to a 4-week low of 2.625% and is down -8.0 bp to 2.641%.  The 10-year UK gilt yield fell to a 4-week low of 4.517% and is down -11.3 bp to 4.527%.

The Eurozone Mar S&P composite PMI was revised upward by +0.5 to a 7-month high of 50.9 from the previously reported 50.4.

The Eurozone Feb PPI rose +3.0% y/y, right on expectations and the fastest pace of increase in almost 2 years.

The account of the ECB's March 6 meeting stated that policymakers are considering both a rate cut and a pause possible for their April meeting, depending on incoming data.

Swaps are discounting the chances at 71% for a -25 bp rate cut by the ECB at the April 17 policy meeting.

US Stock Movers

Today's selloff in the Magnificent Seven stocks is weighing on the overall market.  Apple (AAPL) is down more than -8% as it is one of the companies most exposed to tariff risks.  Also, Amazon.com (AMZN) is down more than -8%, and Meta Platforms (META) is down more than -7%.  In addition, Nvidia (NVDA) and Tesla (TSLA) are more than -6%, Alphabet (GOOGL) is down more than -3%, and Microsoft (MSFT) is down more than -2%.

Some big tech companies today are under particular pressure since Europe has threatened to retaliate for US tariffs with European tariffs and restrictions on US tech and service companies, and possibly US banks.

Chip makers are sharply lower today.  Microchip Technology (MCHP) is down more than -14% to lead losers in the Nasdaq 100, and Micron Technology (MU) is down more than -11%.  Also, Marvell Technology (MRVL), NXP Semiconductors NV (NXPI), and ON Semiconductor (ON) are down more than -8%.  In addition, Broadcom (AVGO), Lam Research (LRCX), Analog Devices (ADI), and Qualcomm (QCOM) are down more than -7%, and KLA Corp (KLAC), Applied Materials (AMAT), and Advanced Micro Devices (AMD) are down more than -6%. 

Consumer stocks, retailers, and apparel makers, which source most of their goods from Asia, are sinking today.  Ralph Lauren (RL) is down more than -17% to lead losers in the S&P 500, and Deckers Outdoors (DECK) is down more than -17%.  Also, Nike (NKE) is down more than -12% to lead losers in the Dow Jones Industrials.  Lululemon Athletica (LULU) is down more than -13% to lead losers in the Nasdaq 100.  Skechers (SKX) is down more than -21%, Target (TGT) is down more than -13%, Dollar Tree (DLTR) is down more than -10%, and Walmart (WMT) is down more than -2%.

Travel and leisure stocks are tumbling on concerns tariffs will raise prices for consumers and curb discretionary spending.  Norwegian Cruise Line Holdings (NCLH) is down more than -14%, and United Airlines Holdings (UAL) and Carnival (CCL) are down more than -13%.  Also, Royal Caribbean Cruises Ltd (RCL) and Wynn Resorts Ltd (WYNN) are down more than -10%.  In addition, Delta Air Lines (DAL) is down more than -9%, and Caesars Entertainment (CZR) is down more than -8%.     

Energy stocks and energy service providers are slumping today, with the price of WTI crude down more than -7% to a 2-week low.  As a result, APA Corp (APA) is down more than -13%, and Devon Energy (DVN) is down more than -12%.  Also, Haliburton (HAL) is down more than -11%, and Valero Energy (VLO), Phillips 66 (PSX), Diamondback Energy (FANG), and Marathon Petroleum (MPC) are down more than 10%.

RH (RH) is down more than -43% after reporting Q4 revenue of $812.4 million, weaker than the consensus of $831.7 million, and forecast full-year revenue will climb 10% to 13%, below the consensus of +14.6%. 

Lyft (LYFT) is down more than -13% after Bank of America double-downgraded the stock to underperform from buy with a price target of $10.50. 

Defensive food makers and beverage companies are moving higher with the plunge in the broader market.  As a result, Mondelez International (MDLZ) is up more than +3% to lead gainers in the Nasdaq 100, and Coca-Cola (KO) is up more than +3% to lead gainers in the Dow Jones Industrials.  Also, General Mills (GIS), Kraft Heinz (KHC), and PepsiCo (PEP) are up more than +3%.  In addition, Hormel Foods (HRL), Tyson Foods (TSN), and Conagra Brands (CAG) are up more than +2%, and Molson Coors Beverage  (TAP), Monster Beverage (MNST), and Keurig Dr Pepper (KDP) are up more than +1%.  

Lamb Weston Holdings (LW) is up more than +6% to lead gainers in the S&P 500 after reporting Q3 adjusted EPS of $1.10, stronger than the consensus of 87 cents, and forecasting full-year adjusted EPS of $3.05-$3.20, the midpoint above the consensus of $3.08.

Earnings Reports (4/3/2025)

Acuity Inc (AYI), Conagra Brands Inc (CAG), Lamb Weston Holdings Inc (LW), and MSC Industrial Direct Co Inc (MSM).