Stock Meltdown Fuels Worst S&P 500 Day Since 2020: Markets Wrap

(Bloomberg) — The “America First” trade is unraveling in the sweeping turmoil in global markets, with stocks acutely exposed to the US economy sinking alongside the dollar. As Wall Street’s rebellion against Donald Trump’s tariff war intensifies, traders are rushing into fixed-income havens. 

About $2 trillion was erased from the S&P 500, with the gauge down about 5%. The Russell 2000 of smaller firms extended its plunge from a 2021 all-time high to 20% on speculation the president’s trade offensive will stunt the American economy. The greenback slid 1.5%, reigniting the debate about its haven reputation during challenging times as the euro, yen and Swiss franc surged. Oil joined a selloff in commodities.

All in, the much-vaunted America-first trade — buying up assets that win when the US outperforms the rest of the world — is reversing on concern that the steepest increase in American tariffs in a century will hammer economic growth.

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That’s driving a fierce rally in global bonds, sending the yield on benchmark Treasuries briefly below the closely-watched 4% level. Most other yields also tumbled as money markets priced in a 50% chance of the Federal Reserve delivering four quarter-point rate reductions this year.

Trump has embraced tariffs as a tool to assert US power, revive manufacturing at home and extract geopolitical concessions. Economists say the near-term result of his measures will likely be higher US prices and slower growth, or perhaps even a recession.

“If these tariffs stick, the economy is going to slow down,” said Mary Ann Bartels at Sanctuary Wealth. “Whether it’s a recession or not, it’s clear that the economy is headed for a slowdown in the US and around the world. There’s no place to hide, but the fixed-income markets.”

As spiraling tariff worries hammer US stocks, legendary investor Bill Gross is urging prospective dip-buyers to stay on the sidelines.

“Investors should not try to ‘catch a falling knife’,” he said in an email. “This is an epic economic and market event similar to 1971 and the end of the gold standard except with immediate negative consequences.”

Wall Street will face a key test Friday as the jobs report and a speech by Fed Chair Jerome Powell should set the tone for markets worried about the outlook for the world’s largest economy.

Goldman Sachs Group Inc.’s trading desk has seen a level of activity on Thursday that’s practically “unheard of” apart from stock-market rebalancing days.

It’s the busiest day for the desk since the emergence of Chinese AI startup DeepSeek rattled global markets in late January, John Flood, a Goldman partner and trading specialist, wrote in a note to clients. 

“Our desk is a 9.5 out of 10 in terms of activity levels and I would not be surprised to see close to 20 billion shares trade across all US equity exchanges today,” where the average this year is 15 billion, Flood wrote. 

Money managers have rolled back exposures to American equities to levels not seen since November 2023, according to a poll by the National Association of Active Investment Managers. Hedge funds dumped global stocks at the fastest rate in 12 years in March, according to Goldman Sachs Group Inc. data.

Recession fears have been rising and that is visible across various asset classes. 

Stocks and bond yields are back moving in concert and their correlation is the highest in two years. But unlike in 2023 when they were both going up, this time they’re falling, a typical sign that economic growth expectations are being downgraded.

Nomura Securities International Inc. said it expects gross domestic product to expand 0.6% in 2025 after accounting for the new levies on imports, and a key measure of underlying inflation to rise to 4.7%. Barclays Plc economists took a more pessimistic view toward GDP — projecting a 0.1% contraction — and a slightly more optimistic view of inflation, penciling in a 3.7% increase.

“I have no doubt that over the near term tariffs will be detrimental to growth,” said Irene Tunkel at BCA Research. “We have gone through the first stage of this calamity and, as I said before, this is bad for financial markets. The first stage is peak uncertainty. The next stage will be downgrades in earnings.”

The US risks being caught between slowing growth and rising prices as a result of the sweeping tariff plans unveiled Wednesday by the Trump administration, according to the president of Apollo Global Management Inc.

The chances of a recession in the world’s biggest economy have risen to 50% or higher, Jim Zelter said in a Bloomberg Television interview Thursday. The risk that tariffs accelerate inflation and constrain the Fed’s ability to stimulate growth by slashing rates has also risen materially, he said. 

“We’re left to ponder how far the price action can extend from here. At this stage, the more relevant uncertainty is the degree to which the US equity market will sell off,” said Ian Lyngen and Vail Hartman at BMO Capital Markets. “In the event that stocks continue to slide, we anticipate that Treasury yields will do the same.”

Trump’s trade war is likely to reinforce the underperformance of US equities, as tariffs crimp earnings for Corporate America, according to global strategists at HSBC including Alastair Pinder.

“We believe this could accelerate the ongoing rotation out of US equities and into international,” they noted.

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US tariffs were larger than expected, not priced in, and coming at a bad time, increasing the risk that US stocks will enter a bear market, UBS strategists led by Bhanu Baweja said.

“All of this is likely to mean an extended period of volatility for US equities,” said Solita Marcelli at UBS Global Wealth Management. Nonetheless, we do believe the market will end the year higher.”

While uncertainty is currently high, Marcelli believes that, at the margin, incremental news flow could become more supportive as we approach the second half of the year.

“Now that the tariffs have been announced, negotiations to soften them can begin,” she said. “Tariff revenue could be used to offset the cost of extending tax cuts. And we would expect the Fed to respond to weakening growth with interest rate cuts.”

Meantime, the dollar’s extended decline in the midst of a global selloff in risk assets has sparked a vigorous debate about whether it has retained its status as a haven during turbulent times, given the homegrown nature of the economic fears roiling macro markets.

The Bloomberg Dollar Spot Index tumbled as much as 2.1% on Thursday, the measure’s sharpest intraday decline since its launch in 2005. Investors are bearish on the dollar in the coming month for the first time since September, options data show.

Hedge funds have increased their bearish bets on the dollar, mainly versus the yen and the euro, while also bracing for higher volatility into year-end, according to currency traders familiar with the transactions who asked not to be identified because they aren’t authorized to speak publicly.

Before the Bell: Stocks and Dollar Sink, UBS Sees 5% Inflation

Some of the main moves in markets:

Stocks

• The S&P 500 fell 4.8% as of 4 p.m. New York time
• The Nasdaq 100 fell 5.4%
• The Dow Jones Industrial Average fell 4%
• The MSCI World Index fell 3.9%
• Bloomberg Magnificent 7 Total Return Index fell 6.7%
• The Russell 2000 Index fell 6.6%

Currencies

• The Bloomberg Dollar Spot Index fell 1.5%
• The euro rose 1.6% to $1.1024
• The British pound rose 0.6% to $1.3081
• The Japanese yen rose 2% to 146.24 per dollar

Cryptocurrencies

• Bitcoin fell 4.3% to $81,931.13
• Ether fell 5.1% to $1,785.72

Bonds

• The yield on 10-year Treasuries declined eight basis points to 4.05%
• Germany’s 10-year yield declined seven basis points to 2.65%
• Britain’s 10-year yield declined 12 basis points to 4.52%

Commodities

• West Texas Intermediate crude fell 6.9% to $66.74 a barrel
• Spot gold fell 0.8% to $3,107.76 an ounce

–With assistance from Vildana Hajric, Phil Kuntz, Sujata Rao, Margaryta Kirakosian and Anand Krishnamoorthy.

©2025 Bloomberg L.P.