MW Stocks see biggest weekly fall since 2020 as Trump tariffs stoke recession fears

By Christine Idzelis

Key gauge of market volatility surges to 2025 high

President Donald Trump's tariffs wreaked havoc in the stock market this week, stoking fears of a trade-war escalation that could lead to a recession.

U.S. stocks showed signs of "capitulation," or a move toward "panic selling," on Friday, with steeps drops in major benchmarks that included a big selloff across all 11 of the S&P 500's sectors, said Anthony Saglimbene, chief market strategist at Ameriprise, in a phone interview.

The Dow Jones Industrial Average DJIA plunged 2,231.07 points on Friday, or 5.5%, finishing the week in correction territory while the technology-heavy Nasdaq Composite COMP entered a bear market. The Dow, Nasdaq and S&P 500 SPX all saw their biggest weekly percentage drops since March 2020, a period when markets were reeling during the Covid-19 crisis.

The S&P 500, a widely followed measure of U.S. large-cap stocks, plummeted 6% on Friday after the Chinese government retaliated against Trump's reciprocal tariffs.

The question is, "what makes it stop?" said Jeffrey Kleintop, chief global investment strategist at Charles Schwab, in a phone interview. There are "no winners in a trade war," said Kleintop. "I think there are some negotiations going on," he said, but "that may take some time."

A gauge of investor anxiety in the U.S. stock market has soared since President Trump announced reciprocal tariffs on April 2. The Cboe Volatility Index VIX surged 50.9% on Friday to 45.31, its biggest climb of the year and building on its spike seen April 3.

Trump has upset the global trading system, calling April 2 "liberation day" and saying it would be remembered as the day "American industry was reborn." His reciprocal tariff announcement sparked carnage in the U.S. stock market, with the S&P 500 plunging 9.1% this week on fears that the levies will hurt the U.S. economy and increase prices for consumers and businesses.

The White House's plan for reciprocal tariffs included a 34% charge on China; the Chinese government responded by adding a 34% levy on U.S. goods beginning on April 10. Investors fear a spiral of retaliation that could lead to a deeper, global economic slowdown.

"Investors remain gripped by tariff anxiety, unable to shake off the 34% across-the-board retaliation from China, possibly marking a point of no return," said Stephen Innes, managing partner at SPI Asset Management, in an emailed note on Friday. "The narrative has now shifted firmly into tit-for-tat escalation, dragging the global economy toward the edge of a trade-driven recession."

Trump's tariffs included particularly large levies on imports from certain countries in Asia, including China, Vietnam, Taiwan and Thailand. That was a "negative surprise," said Kleintop. "We get a lot of goods from these countries."

Check out: Vietnam, China, Europe ETFs under pressure after Trump's reciprocal tariffs

The tariffs will be implemented on April 9 and are higher than the 10% baseline levies that the U.S. will impose on all countries effective April 5, according to an announcement from the White House. The reciprocal tariffs will be imposed on countries with which the U.S. has the biggest trade deficits, the White House said.

Small-cap stocks in the U.S. sold off hard after Trump's "liberation day" tariffs were unveiled.

The next day the small-cap equities focused Russell 2000 index RUT entered a bear market, marked by a drop of at least 20% below a recent peak, according to Dow Jones Market Data. Correction territory is defined as a decline of at least 10% from a recent high.

Although small-cap companies in the U.S. don't do a lot of exporting, they're generally more dependent on imports, according to Kleintop.

"They get nailed by the tariffs," he said.

The Russell 2000 dropped 4.4% on Friday, deepening the index's weekly loss to 9.7%, according to FactSet data.

Tariffs have sparked "fears of a global recession," said Saglimbene. With respect to this week's selloff in U.S. stocks, "a lot of this is driven by President Trump" and "he could quickly change the narrative" by potentially rolling back some of the tariffs, according to Saglimbene.

In terms of retaliation, "China came out very aggressive," he said. "We'll have to see what Europe does."

Kleintop was also watching for negotiations between the White House and its trading partners.

"This is a major and abrupt change" to the past few decades of global trade and to "what has been the normal operating environment for businesses," he said. "It's possible a deal could come," but it may be tough to see that before reciprocal tariffs are set to take effect on April 9, said Kleintop.

In his view, the market on Friday appeared "skeptical that a deal will get done in the near term." And meanwhile, "the odds of recession are rising rapidly," with the probability of one increasing "the longer these tariffs remain in place," said Kleintop.

-Christine Idzelis

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 04, 2025 20:09 ET (00:09 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.