Trade War Causes Stocks To Lose $3.1 Trillion On Thursday, Led By Apple

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Key Takeaways

• Markets Plunge As Tariffs Spark Panic And Tech Leads Losses.
• China Retaliates, Trade War Escalates, Recession Risks Increase.
• Oil Drops, Yields Fall, VIX Spikes Amid Economic Uncertainty

There’s an old expression on Wall Street. Stocks stair-step higher and go down like jumping out a window. What we saw yesterday and this morning in the premarket is more like off a high rise. On Thursday, stocks lost $3.1 trillion, their worst day since back in March of 2020. The S&P 500 fell nearly 5%. Tech stocks led the Nasdaq 6% lower. The Russell 2000 dropped 6.5% and the Dow Jones Industrial Average lost 4%. Ten of the eleven sectors in the S&P were lower on Thursday with energy turning in the worst performance, down 7.5%. The sole sector that was up on the day was consumer staples, gaining 0.7%. Digging beneath the surface, the carnage was even worse with a number of stocks, which were already down on the year, falling 10%. Apple, which was down 9% on Thursday experienced the second largest notional loss in the market’s history. Looking at the premarket, the selling looks set to continue.

After the close Wednesday, President Trump announced his tariff plans, set to go into effect on April 9th. The rates, which many thought was already being priced into markets, were significantly more severe than anticipated. Included in his announcement, the European Union will be taxed at 20%. China, which is already under tariffs, will see an additional 34% increase. A 10% tariff on all imported goods was also announced. According to an article in The Wall Street Journal, that will bring the overall weighted-average tariffs to 23%. Following the U.S. announcement on tariffs, other countries began responding with tariffs of their own.

The biggest retaliatory announcement came early Friday morning from China. The Finance Ministry in China announced they would impose 34% tariffs on all U.S. imports, starting on April 10th. In addition, China also announced they were suspending certain agricultural products and that they would be tightening export controls on certain rare Earth items.

With a full-scale trade war now taking place, odds of a recession in the U.S. have been steadily climbing. J.P. Morgan has placed the odds of a recession at 60%. While there may be good reason to view any economic forecast with a degree of skepticism, the evidence of a potential recession is showing up in places in the market outside of equities.

Oil prices, which touched $72 per barrel on Wednesday, have since fallen over 15% to just over $61 in premarket. Oil prices are used as a proxy for economic health as a strong economy requires more oil, driving prices higher. Weakness in oil is often interpreted as a recessionary indicator. In addition to the fall in oil prices, we’re seeing bond prices move higher and interest rates plummet. The yield on the benchmark 10-year note is now below 3.9%. That rate was as high as 4.77% at the beginning of the year.

This morning, we received the most recent look at employment. According to Bloomberg, estimates were for 139 thousand new jobs and an unemployment rate of 4.1%. The number of jobs created was higher, at 228 thousand, while the unemployment rate was 4.2%. There were some sizeable revisions however, with both January and February seeing downward revisions totaling 48 thousand fewer jobs than were originally reported.

For today, Fed Chairman Powell is set to speak at 10:25AM CT. While I expect him to bob and weave like Muhammad Ali, markets may be looking to him for some sort of assurance that the Fed is willing to cut rates if needed. In addition to Powell, I’m keeping my eye on some individual stocks, like Alibaba, which is off 13% from its high last month. I’m also watching the VIX. I’ve spoken about the orderly selloffs we’ve been seeing and how VIX never really jumped to a level where you might see panic selling. In the premarket, VIX has been as high as 45.56, but has since pulled back some to just under 40. Anything over 30 is when you begin seeing panic seep in and that could lead to some choppy trading. For option traders though, the high VIX means option premium is expensive and there may be opportunities for selling that premium. As always, I would stick with your investing plan and long-term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.