On Monday, financial markets worldwide took a severe hit as investors grappled with the possibility of a significant economic downturn driven by the escalating trade war. The S&P 500, a key U.S. index, opened with a decline of more than 3 percent. Should these losses endure throughout the day, the index will officially enter bear market territory—a drop of 20 percent or more from a previous high.
The intensifying trade war has heightened fears about global repercussions, especially as hopes that the Trump administration might ease tariffs diminish. Over the weekend, President Trump remained resolute, declaring that he wouldn’t lift tariffs unless other nations “pay us a lot of money.” In response to inquiries about the market chaos and recession fears, he stated, “sometimes you have to take medicine to fix something.”
Technology-heavy Nasdaq Composite saw a 4 percent drop, while European stocks followed suit, with the pan-European index plunging over 4 percent. Asia didn’t fare much better; markets were particularly volatile, with Hong Kong stocks plummeting 13 percent and Taiwan falling by 10 percent. Mainland China’s markets weren’t spared, experiencing a 7 percent decline.
This turmoil follows China’s reaction to the U.S. with a hefty 34 percent tariff on various American goods, mirroring the recent tariffs imposed by Mr. Trump on Chinese products. These tariffs from China are expected to take effect soon, aligning with the U.S. administration’s reciprocal tariffs on several countries. Furthermore, a 10 percent baseline tariff was implemented over the weekend on nearly all imports to the U.S.
The weekend brought analyst reports cautioning that Asia could be particularly vulnerable in this retaliatory tariff battle between China and the U.S. Many regional countries, Japan and South Korea included, rely heavily on both nations as primary trading partners. South Korea’s benchmark indexes saw a 5 percent drop, and Australia over 4 percent. Japan experienced such sharp declines that trading on futures was briefly paused, with the Nikkei 225 ultimately closing down over 7 percent.
Across Asia, technology stocks were hit hard. Major players like Taiwan Semiconductor Manufacturing Company dropped nearly 10 percent, and Foxconn, Apple’s key manufacturer, also fell by 10 percent. In Hong Kong, technology titans such as Alibaba, Tencent, and Xiaomi faced double-digit losses. Meanwhile, Nintendo in Japan, citing tariffs when delaying pre-orders for a popular console, saw a more than 7 percent drop.
Conversely, European markets saw losses across all sectors, though some ease came in afternoon trading. Banks were notably affected amid fears of an economic slowdown. Shares in financial giants like Germany’s Deutsche Bank and Britain’s Barclays fell by over 4 percent. Defense companies, which previously found support from increased military spending pledges, experienced declines, with Germany’s Rheinmetall and Italy’s Leonardo both dropping around 3 percent.
As some stock indexes started to pull away from their lowest points, government bonds also saw adjustments, with yields rising higher. Germany’s 10-year bond yields reached 2.56 percent, after earlier trading at 2.43 percent, while U.S. 10-year Treasury yields climbed back above 4 percent.
In the oil market, prices dipped approximately 2 percent, adding to last week’s steep losses. Thursday and Friday witnessed a sharp 10.5 percent decline in the S&P 500—a two-day drop only surpassed during the 2008 financial crisis and the 1987 stock market crash. Over $5 trillion was erased from the S&P’s value in those two days, a record in dollar terms.
One of the standout aspects of last week’s sell-off is its direct link to presidential policy. Announcements of markedly high tariffs by Mr. Trump took investors and economists by surprise, disrupting economic projections. As a result, companies have started cautioning consumers about upcoming price hikes on commodities such as groceries and clothes. There have also been indications of reduced spending on major purchases by consumers. Some automobile manufacturers have already announced pauses in overseas production and domestic job cuts, leading economists to increase the likelihood of a U.S. recession within the coming year. As countries retaliated with their tariffs, financial markets continued to spiral downwards.
Over the weekend, hedge fund manager Bill Ackman expressed his support for Mr. Trump’s efforts to address global tariffs but urged him to consider a “90-day timeout” to prevent further economic damage. Otherwise, he warned, we might be heading for a “self-induced, economic nuclear winter.” Calling for calm, he hoped, “May cooler heads prevail.”
British Prime Minister Keir Starmer also chimed in, urging nations not to retaliate and avoid a full-blown trade war, as he claimed, “the world as we knew it has gone.” The tech-laden Nasdaq Composite is already in bear market territory, having dropped nearly 23 percent from its peak in December. Similarly, the Russell 2000 index—focused on smaller, more economy-sensitive companies—has seen over a 25 percent decline since its November high.
While some, like Treasury Secretary Scott Bessent, downplay recession fears, analysts caution that the toll on the economy largely hinges on how long these elevated tariffs persist. “We remain very cautious,” remarked Stuart Kaiser, an equity analyst at Citi. Despite last week’s market drop, he suggested further potential decline, citing that expectations of earnings and economic growth remain “well above levels consistent with announced tariff levels.”
