US Stock Futures Tumble With Trump Team Digging In on Tariffs

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(Bloomberg) — US equity futures plunged, putting the S&P 500 on track for a bear market as the Trump administration dug in on a trade war economists warn will tip the world’s largest economy into recession. 

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Contracts on the S&P 500 Index plunged 3.6% at 6:27 p.m. in New York, after the underlying index sank 10% in the past two days. The rout in futures would leave the cash index on pace to fall more than 20% from its February record. Nasdaq 100 Index futures sank 4.4%, after the tech-heavy gauge entered a bear market Friday. Russell 2000 futures lost almost 5%. 

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In other markets, Treasuries rallied again after the two-year yield fell to the lowest since 2022. Oil plunged to a four-year low on Friday, while gold surged. Haven currencies such as the yen and Swiss franc strengthened versus the dollar.

Investors hoping for some relief from the punitive measures that threaten to ignite inflation and crater the economy got none from the administration. Top Trump officials, including Treasury Secretary Scott Bessent, dismissed investor fears of inflation and slower growth, offering no apologies for the market turmoil and defiantly insisting a boom is on the horizon. 

“The bleeding continues because Trump or Bessent didn’t say anything to calm fears and now the bull run is about to sputter to a sad end,” Jay Woods, chief global strategist at Freedom Capital Markets, said by phone. “I’m sick of people saying we’re overdue for this. We’re still eagerly waiting to get a reprieve and nothing is happening. If we don’t hear from Trump very soon, the pain will continue.”

A 7% plunge in S&P 500 futures would trip circuit breakers designed to tamp down volatility in markets and help address the risk of erroneous trades in an era of high-frequency trading. Volatility has gripped markets since Trump’s tariff onslaught, with the Cboe volatility gauge spiking above 45 – a level seen in times of extreme market turbulence.

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Meanwhile, Federal Reserve Chair Jerome Powell on Friday signaled the central bank is on high alert for a spike in inflation caused by the tariffs, diminishing the likelihood of rate cuts any time soon, even as traders priced in  more cuts this year as a response to an economic downturn.

“The Fed is not ready to step in and if the president thinks the economy is fine, he has no reason to step in,” said Neil Dutta, head of economics at Renaissance Macro Research LLC. “Investors need to know that the combined strike price on the policy put continues to decline.”

Strategists continued to downgrade their views on the US equity market, with Evercore ISI joining firms in saying it was too optimistic in its 2025 targets. RBC Capital Markets, Goldman Sachs Group Inc., Barclays and Yardeni Research all slashed theirs due to tariff uncertainty. 

“We came into the year way too bulled up, and the question now is, what valuation you want to pay for a market that’s facing so much uncertainty?” said Michael Purves, chief executive officer at Tallbacken Capital Advisors. “Earnings are at risk, margins are at risk, higher inflation and lower growth is a combination that no one wants.”

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The frantic two-day selloff unleashed by Trump’s trade levies and the world’s response to them rocked financial markets, reversing months of uninterrupted advance in US stocks. Apple Inc., which makes the majority of its US-sold devices in China, fell 16% in two days, while industrials giant Caterpillar Inc. lost 14%.

Economists expect tariffs to touch off a price shock. A 10% universal tax on imports would imply a 1 percentage point increase in US consumer prices from its latest reading of 2.8%, estimates compiled by Ned Davis Research show. 

“Trump officials say they aim to make Main Street wealthy again even if that’s bad for Wall Street,” Ed Yardeni of Yardeni Research wrote in a note to clients. “The problem is that Main Street owns lots of equities traded on Wall Street, so the two streets prosper and suffer together.”

The uncertainty has unleashed volatility on global financial markets. The Cboe VIX Index Index closed Friday above 45 for the first time since April 2020, while the volume of options on US exchanges topped 100 million for the first time as traders rushed for protection.

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The derivatives market is pricing in more volatility ahead, according to Piper Sandler. Options activity suggests traders expect the S&P 500 to swing 5.6% this week — the highest since the depths of the pandemic. On Monday alone, the benchmark equities index is implied to swing 3.3% in either direction.

Treasury yields are expected to slide as well, as investors pout into the relative safety of US government debt. Two-year yields fell to the lowest since 2022 and traders are pricing in more cuts from the Fed, even though warnings about inflation have picked up.

The selling pressure in equities resumes after the S&P 500 Index plummeted 6% on Friday with 97% of its members ending the day in the red. It lost more than 10% in two sessions in a feat that happened just three other historic episodes since 1960 — the 1987 Black Monday crash, the 2008 financial crisis and the 2020 pandemic. 

Hedge funds have ramped up short selling at an unprecedented pace amid the market turmoil, with notional short selling in US macro products the largest on record last week, according to Goldman Sachs Group Inc.’s latest prime brokerage data. The US Macro Products that combines both index and exchange-traded funds were sold at the fastest pace in over a year, driven entirely by short sales.

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A gauge of Chinese stocks listed in the US plunged 8.9% on Friday, the most since October 2022, amid the turmoil after Beijing announced 34% tariffs on all imports from the US. That came during a holiday for Chinese and Hong Kong equities, which will restart trading on Monday.

The trade fight weighed hard on shares of energy and financial companies Friday, including Baker Hughes Co., which plunged 13%, and insurer MetLife Inc. which fell 9%. The Philadelphia Semiconductor Index slid 7.6% following Thursday’s 9.9% loss, as Micron Technology Inc. dropped 13%.

Trump on Friday downplayed the selloff, saying it will reverse as the benefits of his policies kick in. Later in the day, however, he showed some signs of concern by lashing out at Powell in a social media post, saying he should “stop playing politics” and cut interest rates immediately. 

Few corners of the stock market have been unscathed amid a 17% drop in the S&P 500 Index in 32 trading days. A rout on Friday flushed out equity positioning to the bottom of its typical range, data compiled by Deutsche Bank AG show. Earlier, fund managers yanked $4.7 billion out of US stocks in the week through April 2, according to EPFR Global.

Tariffs the Trump administration announced on US trading partners would likely push the US and possibly the global economy into a recession in 2025 if they remain in place, according to JPMorgan’s Chief Economist Bruce Kasman. 

—With assistance from Elena Popina.

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