In New York, Wall Street stumbled on Monday as investors around the globe grew increasingly wary of U.S. investments, largely due to the ongoing trade war instigated by President Donald Trump and his outspoken criticism of the Federal Reserve. These developments have created significant disruptions in the usual financial order.
The S&P 500 took a hard hit, plummeting 2.4% in another substantial setback. This decline yanked the index, which is central to numerous 401(k) accounts, down 16% from its record high established a couple of months ago.
The Dow Jones Industrial Average experienced a significant drop of 971 points, or about 2.5%. Meanwhile, Tesla and Nvidia were among the key players pulling the Nasdaq composite down by 2.6%.
Even more concerning, U.S. government bonds and the value of the U.S. dollar also suffered a decline as prices across multiple American markets fell. It is an unusual occurrence because, historically, Treasurys and the dollar tend to fortify during periods of uncertainty. However, it appears Washingtonโs own policies are generating the apprehension this time, potentially tarnishing their reputations as some of the safest investments worldwide.
President Trump has continued his resolute stance on global trade, despite warnings from economists and investors indicating that his stringent proposed tariffs could prompt a recession if not reversed. Recent talks between the U.S. and Japan failed to produce a swift agreement to reduce tariffs and protect economic interests, seen by some as a โtest case,โ noted by strategist Thierry Wizman from Macquarie.
โThe golden rule of negotiating and success: He who has the gold makes the rules,โ Trump proclaimed in capitalized letters on his Truth Social Network. He went on to claim that โthe businessmen who criticize tariffs are bad at business, but really bad at politics,โ also in capital letters.
Recently, Trumpโs focus has been on China, the worldโs second-largest economy, which has intensified its rhetoric too. On Monday, China warned against any trade agreements made with the United States that might put โChinaโs interestโ at risk, as countries like Japan and South Korea attempt to broker deals.
โIf this happens, China will never accept it and will resolutely take countermeasures in a reciprocal manner,โ stated Chinaโs Commerce Ministry.
Adding to market anxieties is Trumpโs dissatisfaction with Federal Reserve Chair Jerome Powell, whom he criticized last week for hesitating to lower interest rates sooner in a bid to revive the economy. The Fed has been cautious against lowering rates too hastily, mindful of not reigniting inflation after it has slowed to near 2% from over 9% three years ago.
On Monday, Trump discussed a potential economic slowdown unless โMr. Too Late, a major loser,โ cuts interest rates โNOW.โ
Should Trump proceed to dismiss Powell, it could instigate a massive shake-up in financial markets. While Wall Street is generally fond of lower rates due to their tendency to boost stock prices, there is a growing concern that a less autonomous Fed might falter in controlling inflation effectively. Such a scenario could further diminish the United Statesโ reputation as the safest place for cash investments.
The resulting uncertainty concerning key financial market pillars prompts some investors to reconsider foundational investment principles.
โWe can no longer extrapolate from past trends or rely on long-term assumptions to anchor portfolios,โ strategists at BlackRock Investment Institute observed in a report. โThe distinction between tactical and strategic asset allocation is blurred. Instead, we need to constantly reassess the long-term trajectory and be dynamic with asset allocation as we learn more about the future state of the global system.โ
As a result, investors from outside the U.S. might opt to keep more of their capital in domestic markets, suggest strategists led by Jean Boivin.
Within Wall Street, technology stocks were predominantly lower in anticipation of upcoming earnings reports later this week. Teslaโs stock sank 5.7%, with its valuation having dropped more than half since its record high in December amidst criticism that the stock price had soared too high and that CEO Elon Muskโs efforts in guiding U.S. governmental spending cuts were tarnishing the brand.
Nvidiaโs stock fell by 4.5%, marking a third consecutive decline after stating that U.S. export limits on chips to China might detrimentally impact its first-quarter results by $5.5 billion.
They were principal contributors to another mass sell-off on Wall Street, with 92% of the stocks within the S&P 500 experiencing losses.
Some rare bright spots included Discover Financial Services and Capital One Financial, whose merger was approved by the U.S. government. Discoverโs stock rose by 3.6%, while Capital One gained 1.5%.
Overall, the S&P 500 fell by 124.50 points to conclude at 5,158.20. The Dow Jones Industrial Average dropped 971.82 to 38,170.41, and the Nasdaq composite declined 415.55 to 15,870.90.
Meanwhile, gold continued to strengthen its reputation as a safe-haven investment.
In the bond market, shorter-term Treasury yields dropped as investors anticipate the Fed might cut its primary overnight interest rate later this year to stimulate the economy. However, longer-term yields increased amid doubts concerning the United Statesโ edge in the global economy. The yield on the 10-year Treasury rose to 4.40%, a jump from 4.34% at last weekโs close and from about 4% earlier in the monthโa significant shift for the bond market.
In contrast, the U.S. dollarโs value fell against several major currencies, including the euro, Japanese yen, and Swiss franc.