Stock Plunge as Trade War Escalates

The S&P 500 Index ($SPX) (SPY) Friday closed down -5.97%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -5.50%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -6.07%.  June E-mini S&P futures (ESM25) are down -6.38%, and June E-mini Nasdaq futures (NQM25) are down -6.60%. 

Stock indexes on Friday sold off sharply for the second session, with the S&P 500 and Nasdaq 100 dropping to 11-month lows and the Dow Jones industrials falling to a 9-month low.  Stock losses deepened on Friday after China retaliated against US tariffs by imposing a 34% tariff on all imports from the US starting April 10.

Stock losses accelerated Friday when Fed Chair Powell said the damage of a trade war would be bigger than anticipated, with potential effects including slower growth and higher inflation, and that the Fed was in no hurry to adjust monetary policy by cutting interest rates.

A supportive factor for stocks was Friday's monthly US payroll report that showed March payrolls rose more than expected.  Specifically, US March nonfarm payrolls rose +228,000, stronger than expectations of +140,000.  However, the March unemployment rate unexpectedly rose +0.1 to 4.2%, showing a weaker labor market than expectations of no change at 4.1%.

US March average hourly earnings rose +3.8% y/y, weaker than expectations of +4.0% y/y and the smallest increase in 8 months.

Fed Chair Powell said the economic impact of new tariffs is likely to be significantly larger than expected and may lead to slower growth and higher inflation.  He added that the Fed is well-positioned to wait to consider adjustments to monetary policy.

This week’s stock plunge began after President Trump Wednesday afternoon announced reciprocal tariffs that were worse than feared, raising concerns that US trade policies will push the US economy and perhaps the global economy into recession.  The plunge in global equity markets has prompted a risk-off mood in asset markets and has fueled a flight to safety into government bonds, with European government bond yields falling to 1-month lows and the 10-year T-note yield dropping to a 6-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 on imports from almost all countries starting on April 5, with the higher rates implemented on April 9.   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%.

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 Thursday.  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.

The markets are discounting the chances at 34% for a -25 bp rate cut after the May 6-7 FOMC meeting.

Overseas stock markets Friday settled sharply lower.  The Euro Stoxx 50 fell to a 3-1/2 month low and closed down -4.60%.  China's Shanghai Composite Index was closed for the Tomb Sweeping Day holiday.  Japan's Nikkei Stock 225 sank to a 7-3/4 month low and closed down by -2.75%.

Interest Rates

June 10-year T-notes (ZNM25) Friday closed up +13 ticks.  The 10-year T-note yield fell -3.4 bp to 3.998%.  June T-notes Friday climbed to a 6-month high, and the 10-year T-note yield tumbled to a 6-month low of 3.856%.  T-notes Friday added to Thursday's sharp gains on concerns a global trade war will drive the US and possibly the global economy into recession after China retaliated with 34% tariffs on US imports.  Also, Friday's global equity market selloff has fueled safe-haven demand for government debt securities.  In addition, T-notes found support after crude oil prices today plunged to a 4-year low, reducing inflation expectations, as the 10-year breakeven inflation rate fell to a 6-month low of 2.165%. 

However, T-notes fell back from their best levels Friday after US March payrolls rose more than expected, a hawkish factor for Fed policy. Also, hawkish comments from Fed Chair Powell sparked long liquidation in T-notes when he said the Fed was in no hurry to adjust monetary policy. 

European bond yields on Friday moved lower.  The 10-year German bund yield tumbled to a 1-month low of 2.479% and finished down -7.4 bp to 2.578%.  The 10-year UK gilt yield dropped to a 3-1/2 month low of 4.375% and finished down -7.2 bp to 4.448%.

German Feb factory orders were unchanged m/m, weaker than expectations of +3.4% m/m.

Swaps are discounting the chances at 86% for a -25 bp rate cut by the ECB at the April 17 policy meeting.

US Stock Movers

The Magnificent Seven stocks plunged Friday and weighed on the overall market.  Tesla (TSLA) closed down more than -10%, and Nvidia (NVDA) and Apple (AAPL) closed down more than -7%.  Also, Meta Platforms (META) closed down more than -5%, and Amazon.com (AMZN) closed down more than -4%.  In addition, Microsoft (MSFT) and Alphabet (GOOGL) closed down more than -3%.

Tech companies were under particular pressure after China retaliated against US tariffs, and 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 Friday sold off sharply.  Micron Technology (MU) closed down more than -12%, and Intel (INTC), Marvell Technology (MRVL), and Microchip Technology (MCHP) closed down more than -11%.  Also, Lam Research (LRCX) and Analog Devices (ADI) closed down more than -9%, and  Advanced Micro Devices (AMD), Qualcomm (QCOM), and GlobalFoundries (GFS) closed down more than -8%.  In addition, KLA Corp (KLAC) and Texas Instruments (TXN) closed down more than -7%, and Applied Materials (AMAT) and NXP Semiconductors NV (NXPI) closed down more than -5%, 

Energy stocks and energy service providers plunged Friday after the price of WTI crude fell more than -7% to a 4-year low.  As a result, APA Corp (APA) closed down more than -14%, and Baker Hughes (BKR) closed down more than -13%.  Also, Diamondback Energy (FANG) closed down more than -12%, and Devon Energy (DVN) and Schlumberger (SLB) closed down more than 11%.  In addition, Haliburton (HAL) closed down more than -10%, and Valero Energy (VLO), ConocoPhillips (COP), and Chevron (CVX) closed down more than -8%. 

Mining stocks tumbled on Friday after gold prices sank to a 2-week low and copper prices plummeted to a 2-month low.  As a result, Freeport-McMoRan (FCX) closed down more than -12%, and AngloGold Ashanti Plc (AU) and Southern Copper (SCCO) closed down more than -8%.  Also, Newmont (NEM) closed down more than -7%. 

US-listed Chinese stocks sank Friday after China announced 34% tariffs on all US imports.  Alibaba Group Holding Ltd (BABA), Baidu (BIDU), JD.com (JD), NetEase (NTES), and PDD Holdings (PDD) closed down more than -7%.

GE HealthCare Technologies (GEHC) closed down more than -15% to lead losers in the S&P 500 after China initiated an anti-dumping investigation into the imports of a type of medical X-ray tube from the US. 

DuPont de Nemours (DD) closed down more than -12% after China's State Administration for Market Regulation said it is probing the company over alleged breach of antitrust law.

Homebuilders rallied Friday after the 10-year T-note yield fell to a 6-month low and put downward pressure on mortgage rates, a supportive factor for housing demand.  DR Horton (DHI) closed up more than +4%, and PulteGroup (PHM) and Toll Brothers (TOL) closed up more than +3%.  Also, Lennar (LEN) closed up more than +2%.

Nike (NKE) closed up more than +3% to lead gainers in the Dow Jones Industrials, and Lululemon Athletica (LULU) and Skechers (SKX) closed up more than +3% after companies with large manufacturing operations in Vietnam rallied when President Trump said Vietnam was willing to eliminate tariffs to avoid new US levies. 

Earnings Reports (4/7/2025)

AMMO Inc (POWW), Dave & Buster's Entertainment (PLAY), and Greenbrier Cos Inc/The (GBX).