Wall Street endured another brutal day on Friday as escalating trade tensions triggered a deeper sell-off across major indices. The Dow dropped 2,231 points (-5.5%), extending its two-day loss to 3,700 points. The S&P 500 fell 6%, while the Nasdaq plunged another 5.8%, officially entering bear market territory. Here’s why Friday’s losses outpaced Thursday’s and what investors should focus on moving forward.
Table of Contents
Why Friday’s Losses Were More Extensive
- China’s Retaliation
On Friday, China imposed a steep 34% tariff on all U.S. imports in response to President Trump’s “Liberation Day” tariffs announced earlier this week. This tit-for-tat escalation heightened fears of a global trade war, leading investors to dump riskier assets like equities. - Market Sentiment Shift
Thursday’s losses were driven by uncertainty surrounding Trump’s tariffs, but Friday saw outright panic as the scope of China’s retaliation became clear. Analysts at JPMorgan raised the probability of a global recession to 60%, further rattling investor confidence. - Sector-Specific Fallout
Technology stocks, heavily reliant on Chinese manufacturing and exports, bore the brunt of the sell-off. Apple (-7.3%), Nvidia (-7.4%), and Amazon (-4.2%) extended their steep losses from Thursday, dragging the Nasdaq deeper into bear market territory (down over 23% from its December peak). - Safe-Haven Flight
Investors fled to traditional safe-haven assets like U.S. Treasuries, pushing the yield on the 10-year Treasury below 4% for the first time since October 2024. This flight from equities exacerbated selling pressure across all sectors.
Key Economic and Market Indicators
- Jobs Report Overshadowed: Despite stronger-than-expected March job growth (+200,000 jobs), markets remained fixated on trade tensions rather than economic fundamentals.
- Oil Prices Collapse: WTI crude fell by 7% to $62 per barrel amid recession fears, marking its lowest level since April 2021.
- Volatility Spike: The CBOE Volatility Index (VIX) surged to 45, closing at its highest level since April 2020, signaling extreme market fear.
What Does This Mean for Stocks?
The escalation of tariffs has pushed all major U.S. indices into correction territory (down more than 10% from recent highs), with the Nasdaq officially in a bear market:
- Short-Term Outlook: Analysts warn that further retaliatory measures from other nations could deepen losses in the coming weeks, particularly if Europe joins China in imposing counter-tariffs on U.S. goods.
- Sector Impact: Technology and consumer discretionary sectors are likely to face continued pressure due to their reliance on global supply chains and exposure to higher input costs from tariffs.
History shows Stocks will likely to rebound next week
Nasdaq Composite plunged 10% this week. Excluding the current one, there were eight weekly plunges of 10% or more over the past 50 years since 1975 (check the charts below for green-red-arrow pairs, green is a weekly loss more than 10%, red is the following week). Five of them resulted in rebound in the following week, gaining, 9.7%, 9.1%, 5.3%, 3.4% and 0.1%. Three of them were down in the following week, losing 0.06%, 1.6% and 15.3%. With the exception of the 15.3% loss in 2008, seven out of these eight 10% or more plunges (an 88% probability) resulted in outcomes ranging from small losses to substantial gains in the following week. Of course, this does not mean the market has bottomed out and more likely not, but there is a higher probability that the market will give investors more breathing room next week. Still, be aware of a huge intra-week volatility, like the one in 1987, despite the fact the following week only lost 1.6%, but the peak intra-week loss reached 12%.
Conclusion
Friday’s losses highlight the growing risks posed by escalating trade tensions and their ripple effects across global markets. While defensive positioning remains key in the short term, investors should closely monitor upcoming developments in tariff negotiations and corporate earnings season for signs of stabilization or further downside risks.
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