Donald Trump tariffs send US markets into shock, Dow Jones down by over 1,600 points

US stocks went into a straight shock on Thursday, one that has not been since the Covid-19 pandemic.

As shares ripped through financial markets across the world over worries about the destruction President Donald Trump’s sweeping global tariffs could bring to economies worldwide, including America’s own.

While the S&P 500 dipped down 4.8 per cent, more than in major European and Asian markets, marking its worst day since the pandemic market crash in 2020. The Dow Jones Industrial Average dropped a whopping 1,679 points (or 4 per cent) and the Nasdaq composite sank 6 per cent.

Fear about the potentially toxic mix of weakening economic growth and increasing inflation because of the tariffs lingered about on the Wall Street.

Everything fell, from big tech firm stocks to crude oil to the very value of the US dollar against other currencies. Even gold, which saw an uptick in its trend amid investors seeking safer in-hand options, saw a sinking range on Thursday, The Associated Press reported.

Smaller US companies took some of the worst blows, with the Russell 2000 index of smaller stocks dropping 6.6 per cent to pull more than 20 per cent below its record.

‘Worst case scenario for tariffs’
While it is to be noted that investors, globally, were aware of Trump’s incoming announcement about sweeping reciprocal tariffs, due to which a clear indication of fear was seen in the health of S&P 500 index, which stood 10 per cent below its all-time high.

Mary Ann Bartels, chief investment officer at Sanctuary Wealth, noted that even after all this, the US president managed to surprise the markets with “the worst case scenario for tariffs”.

Trump announced a universal minimum tariff of 10 per cent on all imports coming to the US, while the tax rate ran much higher for products from certain countries like China, the European Union, India, Cambodia, etc.

As per UBS, it is “plausible” the tariffs altogether could knock down the US economic growth by 2 percentage point this year, raising inflation close to 5 per cent, it added.

Bhanu Baweja and other strategists at UBS noted that such a low hit (on the markets and economy) would be so big that it “makes one’s rational mind regard the possibility of them sticking as low”.

‘Markets going to boom’
Previously, Trump said that tariffs could cause a “little disturbance” in the economy and markets. And now, with these two taking the worst hit almost, the President on Thursday downplayed the impact of his sweeping levies.

“The markets are going to boom, the stock is going to boom and the country is going to boom,” Trump said on Thursday as he left the White House to fly to Florida.

In contradictory to Wall Street’s long-standing assumption that Trump would use tariffs just for negotiations with other nations, the president’s levies announcement may suggest that Trump sees tariffs as an ideological goal rather than an opening bet in a poker game.

While making his tariffs announcement, Trump also spoke about getting back manufacturing jobs to the US, a process that could take years. If Trump follows through on his tariffs, then stock prices will have to fall further, much more than the 10 percent from their all-time high, to reflect that a recession could happen.

In the wee hours of Friday, S&P 500 was down 11.8 per cent from its record set in February.

Sean Sun, portfolio manager at Thornburg Investment Management, who sees Trump’s tariffs as more of an opening act than an endpoint for policy, said, “Markets may actually be underreacting, especially if these rates turn out to be final, given the potential nock-off effects to global consumption and trade.”

On a reporter’s question about the market’s drop, Trump offered an upbeat response, “I think it’s going very well. We have an operation, like when a patients gets operated on and its a big thing. I said this would exactly be the way it is.”

One possible way to improve the situation might be for the Federal Reserve to slash interest rates to support the economy. What lower interest rates do is that they slightly help make it easier for American companies and households to borrow and spend.

Yields on Treasurys also tumbled in part of rising expectations from coming cuts to rates, along with general fear about the US economy’s health. The yield on the 10-year Treasury fell to 4.04 per cent from 4.20 per cent late on Wednesday from 4.80 per cent in January. This is a huge move for the bonds market.

Though lower interests can help maintain the economy, they could also give a push to inflation. Worries across the US continued to sharpen as American households brace for sharp surges in their bills.

While the US economy is currently on the growth trajectory, a report on Thursday mentioned how fewer US workers applied for the unemployment benefits last week.

Tensions of a potentially stagnating economy, along with a high expectation of high inflation. All stocks were knocked down, leading to drops for four out of every five that make up the S&P 500.

Other stocks that fell
Best Buy sank 17.8 per cent because the electronics it produces are made all over the world. The United Airlines dropped 15.6 per cent as consumers were tense over the global economy and so they might not fly as much for business or fell comfortable enough to go for a vacation.

Target dipped 10.9 per cent amid worries over its customers, already tense over still-high inflation, may be more stress.

At the end, the S&P fell 274.45 points to 5,396.52 points. The Dow Jones Industrial Average dipped 1,679.39 to 40,545.93, and the Nasaq composite tumbled 1,050.44 to 16,550.61.

Indexes fell sharply worldwide as well, with France’s CAC 40 dipping 3.3 per cent and Germany’s DAX losing 3 per cent in Europe. Japan’s Nikkei 225 sank 2.8 per cent, Hong Kong’s Hang Seng lost 1.5 per and South Korea’s Kospi sank 0.8 per cent.