Volatility Dominates as Traders React to Tariff Headlines Both Real and Fake

This afternoon, the S&P 500 Index ($SPX) (SPY) is down -0.42%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.08%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.02%.  

The market opened lower this morning for the third consecutive session, with the S&P 500 falling to a 14-month low and the Dow Jones Industrials and Nasdaq 100 falling to 15-month lows.  This is due to the concern that a trade war will push the global economy into recession.  Over the weekend, President Trump dismissed the ongoing selloff in equity markets when he said to “forget the markets for a second” and pledged to continue with his tariff policies.  Also, Treasury Secretary Bessent dismissed market concerns about slowing economic growth and inflation fears and insisted that an economic boom is on the horizon.

Stock indexes popped into positive territory briefly this morning on reports of a tariff pause that the White House quickly dismissed as “fake news.” Stocks have moved off their session lows, but investors clearly remain on edge, with the Cboe Volatility Index ($VIX) earlier rising above 60.

The recent carnage in equity markets began last Wednesday when President Trump 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.  Stock losses deepened last Friday when China retaliated against US tariffs by imposing a 34% tariff on all imports from the US starting April 10.

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 and a plunge in commodity prices, with WTI crude oil falling to a 4-year low and COMEX copper prices dropping to a 3-month low. 

Last Wednesday, President Trump said the US will impose at least a 10% tariff on virtually all countries, with higher reciprocal rates on some 60 nations.  The new tariffs were implemented on imports from almost all countries on Saturday, 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.

Market attention this week will focus on US trade policies and if other nations retaliate against US tariffs.  On Wednesday, the minutes of the March 18-19 FOMC meeting will be released.  On Thursday, Mar CPI is expected to ease to +2.6% y/y from 2.8% y/y in Feb, and Mar CPI ex-food and energy is expected to ease to +3.0% y/y from +3.1% y/y in Feb. On Friday, Mar PPI final demand is expected to climb to +3.3% y/y from +3.2% y/y in Feb, and Mar PPI ex-food and energy is expected to rise to +3.6% y/y from +3.4% y/y in Feb.  Finally, the University of Michigan Apr US consumer sentiment index is expected to fall to 54.0 from 57.0 in March. 

Overseas stock markets today are sharply lower.  The Euro Stoxx 50 fell to an 8-month low and is down -3.67%.  China’s Shanghai Composite Index sank to a 6-1/4 month low and closed down -7.34%.  Japan’s Nikkei Stock 225 sank to a 17-month low and closed down by -7.83%.

Interest Rates

June 10-year T-notes (ZNM25) today are down -26 ticks.  The 10-year T-note yield is up +13.2 bp to 4.126%.  June T-notes today retreated from a 6 1/4 month high and are moderately lower.  The ongoing tariff turmoil is prompting foreign investors to liquidate their dollar assets on US recession concerns and a confidence crisis in the dollar, weighing on T-notes.  T-notes also have a negative carryover from last Friday when Fed Chair Powell said the Fed was in no hurry to adjust monetary policy.  In addition, supply pressures are weighing on T-notes as the Treasury will auction $119 billion of T-notes and T-bonds this week, beginning with Tuesday’s $58 billion auction of 3-year T-notes.

T-notes still have support from concern that a global trade war will drive the US and possibly the global economy into recession.  Also, today’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 6-1/2 month low of 2.139%.

European bond yields today recovered from early losses and are moving higher.  The 10-year German bund yield rebounded from a 1-month low of 2.430% and is up +5.0 bp to 2.628%.  The 10-year UK gilt yield recovered from a 3-3/4 month low of 4.363% and is up +17.0 bp to 4.618%.

Eurozone Feb retail sales rose +0.3% m/m, weaker than expectations of +0.5% m/m.

The Eurozone Apr Sentix investor confidence index fell -16.6 to a 1-1/2 year low of -19.5, weaker than expectations of -9.0. 

German Feb industrial production fell -1.3% m/m, weaker than expectations of -1.0% m/m.

Swaps are discounting the chances at 85% for a -25 bp rate cut by the ECB at the April 17 policy meeting.

US Stock Movers

The Magnificent Seven stocks are sliding today and weighing on the overall market.  Tesla (TSLA) and Apple (AAPL) are down more than -5%.  Also, Microsoft (MSFT) is down more than -1%, and Alphabet (GOOGL) is down -0.85%.  In addition, Nvidia (NVDA) is down -0.46%, and Meta Platforms (META) is down -0.27%. 

Today’s rebound in chipmakers is limiting losses in the broader market.  Applied Materials (AMAT), Analog Devices (ADI), Lam Research (LRCX), and Microchip Technology (MCHP) are up more than +4%.  Also, KLA Corp (KLAC), ON Technology (ON), Marvell Technology (MRVL), and GlobalFoundries (GFS) are up more than +3%. 

Banking stocks are under pressure today after Morgan Stanley downgraded large-cap and midcap banks to inline from attractive.  As a result, Frankin Resources (BEN) is down more than -5%, and Goldman Sachs (GS) is down more than -3%.  Also, Wells Fargo (WFC), Citigroup (C), US Bancorp (USB), and Synchrony Financial (SYF) are down more than -1%.

Energy stocks and energy service providers are falling for a second day today after the price of WTI crude fell to a 4-year low.  As a result, Schlumberger (SLB) is down more than -7% to lead losers in the S&P 500.  Also, Occidental Petroleum (OXY) is down more than -5%, and Exxon Mobil (XOM) and Hess Corp (HES) are down more than -3%.  In addition, ConocoPhillips (COP), Haliburton (HAL), Phillips 66 (PSX), and Devon Energy (DVN) are down more than -2%. 

US-listed Chinese stocks are tumbling for a second session today after China announced 34% tariffs on all US imports.  Alibaba Group Holding Ltd (BABA), JD.com (JD), NetEase (NTES), and PDD Holdings (PDD) are down more than -2%.

Airline stocks are sliding today on downgrades from UBS. Alaska Air Group (ALK), Delta Air Lines (DAL), and United Airlines Holdings (UAL) are down more than -1% after UBS downgraded the stocks to neutral from buy.

General Motors (GM) is down more than -2% after Bernstein downgraded the stock to underperform from market perform with a price target of $35.

Vulcan Materials (VMC) is down more than -1% after UBS downgraded the stock to neutral from buy.   

Fox Corp (FOXA) is down more than -1% after Wolfe Research downgraded the stock to underperform from peer perform with a price target of $48.

Dollar Tree (DLTR) is up more than +7% to lead gainers in the S&P 500 after Citigroup upgraded the stock to buy from neutral with a price target of $103. 

Earnings Reports (4/7/2025)

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