Markets plunge worldwide for a second day straight following China's tariff retaliation
Stocks took a tumble again on Friday, with Dow closing down 2,200 points
Wall Street's worst crisis since COVID slammed into a higher, scarier gear Friday.
The S&P 500 lost six per cent after China matched U.S. President Donald Trump's big raise in tariffs announced earlier this week. The move increased the stakes in a trade war that could end with a recession that hurts everyone. Not even a better-than-expected report on the U.S. job market, which is usually the economic highlight of each month, was enough to stop the slide.
The drop closed the worst week for the S&P 500 since March 2020, when the pandemic crashed the economy. The Dow Jones industrial average plunged 2,231 points, or 5.5 per cent Friday, and the Nasdaq composite tumbled 5.8 per cent to pull more than 20 per cent below its record set in December.
Canada's main stock index, S&P/TSX, closed down 1,142 points. Although it was one of the biggest single-day point changes since 2020, the 4.6 per cent loss didn't crack the top twenty for worst ever single-day losses, showing that we've weathered sharper drops before.
So far, there are few, if any winners, in financial markets from the trade war. Stocks for all but 12 of the 500 companies that make up the S&P 500 index fell Friday. European stocks saw some of the day's biggest losses, with indexes sinking roughly five per cent. The price of crude oil tumbled to its lowest level since 2021.
Other basic building blocks for growth, such as copper, also saw prices slide sharply on worries the trade war will weaken the entire global economy.
China's response to U.S. tariffs caused an immediate acceleration of losses in markets worldwide. The Commerce Ministry in Beijing said it would respond to the 34 per cent tariffs imposed by the U.S. on imports from China by imposing a 34 per cent tariff on imports of all U.S. products beginning April 10.
The United States and China are the world's two largest economies.
"The market's reaction is delivering a verdict and we should take that seriously," Brendan LaCerda, director of economic research at Moody's Analytics, told CBC News.
Investors hadn't expected Trump's tariffs to be as high as they were, or China's retaliation to be as strong, he said. As investors react to this and crunch the numbers on their profit forecasts, "the outlook is just turning decidedly darker."
"Where does the market find its bottom?" he said. "That's a little bit of an open question."
Even though Canada was one of the few countries that didn't get struck with additional "reciprocal" tariffs on Wednesday by the U.S., Canadian markets are still fluctuating amid the global instability.
The losses on Friday are "stunning, but not surprising," Earl Davis, head of fixed income and money markets at BMO Global Asset Management, told CBC News.
He said the next Bank of Canada meeting, on April 19, is "a big one," to see if rate cuts could bring more stability to the markets. But for the next couple of weeks, experts are predicting markets will remain "volatile," he said.
Better-than-expected U.S. jobs report
Markets briefly recovered some of their losses following Friday morning's U.S. jobs report, which said employers accelerated their hiring by more last month than economists expected. But that jobs data was backward-looking, and the fear hitting financial markets is about what's to come.
"The world has changed, and the economic conditions have changed," said Rick Rieder, chief investment officer of global fixed income at U.S. investment bank BlackRock.
The central question is: Will the trade war cause a global recession? If it does, stock prices will likely need to come down even more than they have already. The S&P 500 is down 17.4 per cent from its record set in February.
Trump seems unfazed. From Mar-a-Lago, his private club in Palm Beach, Fla., he headed to his golf course a few miles away after writing on social media that "THIS IS A GREAT TIME TO GET RICH."
Much will depend on how long Trump's tariffs stick and what kind of retaliations other countries deliver. Some of Wall Street is still holding onto hope Trump will lower the tariffs after negotiating with other countries to pry out some "wins." Otherwise, many say a recession looks likely.
Trump has given mixed signals on that. On Friday, he said an official from Vietnam said his country already "wants to cut their Tariffs down to ZERO if they are able to make an agreement with the U.S." Trump also criticized China's retaliation, saying on his Truth Social platform that "CHINA PLAYED IT WRONG, THEY PANICKED - THE ONE THING THEY CANNOT AFFORD TO DO!"
Trump has said Americans may feel "some pain" because of tariffs, but he has also said the long-term goals, including getting more manufacturing jobs back to the United States, are worth it. On Thursday, he likened the situation to a medical operation, where the U.S. economy is the patient.
"For investors looking at their portfolios, it could have felt like an operation performed without anesthesia," said Brian Jacobsen, chief economist at Annex Wealth Management.
But he said the next surprise for investors could be how quickly tariffs get negotiated down. "The speed of recovery will depend on how, and how quickly, officials negotiate," he said.
Stocks plummeting in wake of China move
On Wall Street, stocks of companies that do lots of business in China fell to some of the sharpest losses.
GE Healthcare got 12 per cent of its revenue last year from the China region, and it fell 16 per cent.
DuPont dropped 12.7 per cent after China said its regulators are launching an anti-trust investigation into DuPont China group, a subsidiary of the chemical multinational. It's one of several measures targeting American companies in retaliation for the U.S. tariffs.
In the bond market, Treasury yields fell, but they pared their drops following Federal Reserve Chair Jerome Powell's cautious statements about inflation.
"Our obligation is to keep longer-term inflation expectations well-anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem," Powell said in written remarks being delivered in Arlington, Va.
The yield on the 10-year Treasury fell to 4.01 per cent from 4.06 per cent late Thursday and from roughly 4.80 per cent early this year. It had gone below 3.90 per cent in the morning.
U.S. Secretary of State Marco Rubio denied on Friday that global economies were being impacted, insisting that the markets would "adjust" in time.
"Their economies are not crashing. The markets are reacting to a dramatic change in the global order in terms of trade," he said, speaking from Brussels after a meeting with NATO Secretary General Mark Rutte.
All told, the S&P 500 fell 322.44 points to 5,074.08. The Dow Jones industrial average dropped 2,231.07 to 38,314.86, and the Nasdaq composite fell 962.82 to 15,587.79.
In stock markets abroad, Germany's DAX lost 5 per cent, France's CAC 40 dropped 4.3 per cent and Japan's Nikkei 225 fell 2.8 per cent.
With files from CBC News
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