[Source/Observer Network by Shao Yun]

After US President Trump announced the "reciprocal tariff" on the 2nd, the US stock market fell for the second consecutive day. On the 4th local time, all three major US indices plunged more than 5%. Among them, the S&P 500 index lost a market value of $5.4 trillion in two trading days, setting a new record; the Nasdaq index has fallen more than 20% from its recent high, confirming entry into a bear market.

Experts criticized that Trump's tariff policy is "the biggest policy mistake in 95 years." Morgan Stanley analysts estimated on the 4th that this move would lead to an economic recession in the United States this year.

By the close of US stocks on the 4th, the S&P 500 index fell 322.44 points from the previous trading day, closing at 5074.08 points, with a decline of 5.97%. The Nasdaq Composite Index fell 962.82 points, closing at 15587.79 points, with a decline of 5.82%. The Dow Jones Industrial Average fell 2231.07 points, closing at 38314.86 points, with a decline of 5.50%.

Bloomberg reported that this means the S&P 500 experienced its largest single-day drop since March 2020 during the pandemic; apart from 14 companies, all other 486 component companies of the S&P 500 closed lower. In the past two days, the S&P 500 index fell by a record 11% to its lowest level in 11 months, wiping out $5.4 trillion in market value of S&P 500 component companies.

Chart by Bloomberg Below are the same

In terms of the Nasdaq, compared to its peak in February, the decline exceeded 20%, meeting the technical standard for entering a bear market. CNN reported that this is the first time in 2022 that the Nasdaq has closed in a bear market. Bloomberg observed that the speed of the Nasdaq's decline since February was only surpassed by the market performance during the early stages of the pandemic in 2020 and the burst of the internet bubble in 2000.

The Dow Jones has fallen more than 10% from its historical high last December, closing in a correction. Sam Stovall, Chief Investment Strategist at CFRA Research, said that this is the first time since March 7, 2022, that the Dow Jones has closed in a correction range. According to Reuters statistics, all three major US indices encountered their largest percentage declines since March 2020 this week.

Since Trump announced the tariffs, the three major US indices have plummeted CNN Chart

"Tariff anxiety sweeps across Wall Street," CNN reported. Although the employment growth data released by the United States on the 4th exceeded expectations, tariff anxiety still dominated market sentiment. The Chicago Board Options Exchange (Cboe) Volatility Index (i.e., the VIX "fear index") surged by 50%, soaring above 45, reaching its highest point since 2020.

Chart by Bloomberg

Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, said: "Unfortunately, the market is no longer focusing on the labor market but is completely focused on tariffs and trade wars because the United States is playing politics with the rest of the world, which may trigger a global economic recession."

Scott Ladner, Chief Investment Officer at Horizon Investments, also stated: "A good employment report is not enough to calm concerns about a recession because it is retrospective and cannot fully foresee the severe impact of the trade war on the economy."

Investors have been concerned that the rapid escalation of the trade war could lead to a recession in both the U.S. and global economies. Michael Feroli, chief U.S. economist at JPMorgan Chase, said in a report to clients on the 4th: "We now expect real GDP to contract under the pressure of tariffs, with annual (fourth quarter/fourth quarter) real GDP growth forecast at -0.3%, down from 1.3% previously."

Feroli expects the contraction in economic activity to suppress hiring and gradually push the unemployment rate up to 5.3%.

JPMorgan's prediction is consistent with similar adjustments made by other banks. Since Trump announced the tariff increase, many banks have successively lowered their expectations for U.S. economic growth this year. Barclays Bank said on the 3rd that it expects U.S. GDP to contract in 2025, which meets the definition of a recession. Citibank lowered its growth forecast for this year to just 0.1% on the 4th.

According to a report by CNBC on the 4th, Jeremy Siegel, a professor at the Wharton School of the University of Pennsylvania, criticized Trump's latest large-scale tariff policy as "the most serious policy mistake in the past 95 years."

"I don't understand why Trump hasn't learned his lesson," Siegel said. "This is completely self-inflicted harm, an 'unforced error'—something that didn't need to happen."

The Smoot-Hawley Tariff Act was a protectionist bill implemented by the U.S. government in 1930, raising tariffs on more than 20,000 imported goods to historically high levels. Subsequently, many countries retaliated with counter-tariffs against the United States, leading to a 67% reduction in U.S. imports and exports during the Great Depression. This act is therefore considered one of the "most foolish bills" in history.

Siegel believes that tariffs increase the possibility of an economic recession in the U.S., and even if Trump cancels the tariffs in two weeks, the uncertainty itself will "resonate for years" in the economy. "If the tariffs persist, I believe the probability of a recession exceeds 50%," Siegel said. "If he cancels the tariffs, we won't enter a recession, but we will experience an economic slowdown."

Previously, affected by the broad tariff measures announced by Trump on the 2nd, JPMorgan raised its forecast probability of a global economic recession to 60% on the 3rd. Analysts said that if countries begin to retaliate against the U.S., the probability of a recession will further increase.

"This is just the tip of the iceberg. Next will be retaliatory actions taken by the EU and other countries. Banks, airlines, and other service companies will become targets," Joe Brusuelas of RSM Accounting Firm said. "The Chinese are exposing Trump's bluster."

Solita Marcelli, Chief Investment Officer of UBS Global Wealth Management Americas, stated in a report on the 4th: "In the short term, we believe the actual tariff rate may still be higher. If President Trump does not take active measures to reduce tariffs within the next three to six months, we may enter a downturn scenario, including a severe U.S. economic recession and a falling stock market."

Trump posted on social media on the 3rd, claiming that despite the impact of tariffs on the market, the stock market will still "prosper," and his economic policies "will never change." On the evening of the 4th local time, Trump further claimed, "Only the weak fail."

This article is an exclusive contribution from Observer Network and cannot be reprinted without permission.

Original source: https://www.toutiao.com/article/7489638771776832015/

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