March 31 – April 7: Liberation Day, Volatility and Recession Fears
- Gold Crown Investing
- Apr 8
- 6 min read
Last week, we reviewed the Fed & Monetary Policy and the decision to keep interest rates steady amidst ongoing inflation. Now, with Liberation Day (tariff announcement) going into full effect, we will break down how this announcement affects markets and different sectors, and what to expect in the coming weeks.
Liberation Day
On April 2nd, Trump announced the most sweeping tariff increase since the 1930 Smoot-Hawley Tariff Act. The administration announced a universal 10% tariff on all imports, set to take place on April 5th. These tariffs are designed to address perceived unfair trade imbalances between the U.S. and other nations. The reciprocal tariffs (U.S. Trade Deficit with country / U.S. Imports from Country) is the formula used to determine the additional tariff above 10%.1
Market Volatility
April 3rd: As expected, the market's reaction to the announcement was very negative. The S&P 500 is down 10.5%, the Nasdaq is down 11%, and the Dow Jones Industrial is down 10% since the announcement. The market lost approximately $5 trillion in 2-3 days, showcasing the uncertainty behind global trade tensions, economic data, and political moves.
The main concerns are rising costs, sticky inflation, and the potential for job losses in certain sectors. Tech stocks that rely on global supply chains were hit hard by the threat of retaliatory tariffs. Large multinational corporations, which depend on international markets for revenue, saw their stock prices dip as traders adjusted their portfolios to account for the increasing risk of global economic slowdown.2
The VIX index has skyrocketed since last weekend, when it sat near the low 20s. After the announcement and into April 7th, the VIX reached a high of 60.13 at open and closed at 46.98. This surge in the VIX up to 60 reflects extreme market fear and uncertainty following the announcement. It fell back down to the mid to high 40s, around double where it was the week before. 3
Retaliation from other Countries
In response to the U.S. tariffs, countries have enacted retaliatory measures, escalating the tensions in global trade.
China:
Imposed tariffs on key U.S. exports including soybeans, pork, and dairy products.
Increased tariffs on automobiles and semiconductors from the U.S.
Restricted U.S. access to Chinese markets, impacting American agricultural producers and manufacturers.
European Union:
Introduced tariffs on U.S. goods such as whiskey, motorcycles, and agricultural products like corn and nuts.
Targeted U.S. steel and aluminum exports with higher tariffs in response to U.S. measures on these products.
Canada:
Imposed retaliatory tariffs on U.S. imports including steel, aluminum, and various consumer goods.
Targeted key products such as ketchup, kitchenware, and cheese.
Mexico:
Enacted tariffs on U.S. goods such as pork, cheese, apples, and potatoes.
Also increased tariffs on steel and aluminum in response to the U.S. tariffs.
Recently, China has vowed to take countermeasures against the U.S. following President Trump's threat to impose an additional 50% tariff on Chinese imports, calling the U.S.'s actions "unilateral bullying." This escalation has led to further concerns over a worsening trade war, with stock markets worldwide becoming more volatile as the U.S. tariffs could drive inflation and hurt consumer prices, while China may shift its focus to new trading partners like the European Union. As trade barriers rise, economic growth could slow, and both businesses and consumers may face higher costs and increased uncertainty.4
Sector-Specific Impacts
The ongoing trade tensions and tariffs are impacting several key sectors. In technology, rising costs for global supply chains and concerns over weak demand, particularly in China, are troubling companies like Apple, Microsoft, and Intel, as tariffs on semiconductors and tech products increase.
The automotive sector is also facing higher production costs due to tariffs on imported components from countries like China and Mexico, while retaliatory tariffs on U.S. vehicles are weakening the export market. In agriculture, tariffs from China on key exports like soybeans, pork, and dairy are reducing U.S. competitiveness, leading to declining revenue for farmers and limited access to important international markets.
The retail sector is grappling with rising consumer prices as the cost of imported goods increases, which could reduce demand for non-essential items and pressure margins for retailers that rely on low-cost imports. In energy, fluctuating oil prices are driven by global trade tensions, while renewable energy companies face disrupted supply chains due to tariffs on foreign components.
The manufacturing and industrial sectors, including companies like Caterpillar and 3M, are dealing with increased production costs from tariffs on materials like steel and aluminum, causing delays in investment and hiring decisions as companies adjust to the economic uncertainty.5
Recession Fears
JPMorgan, Goldman, and Bank of America have all raised their recession odds. According to the Wall Street Journal’s Economic Forecasting Survey, over 65% of economists expect a downturn this year, pointing to tariffs, inflation, and weakening global demand.
A recession is defined as two consecutive quarters of negative GDP growth, and right now, we are halfway there. The Atlanta Fed’s GDP Now model is projecting -1.8% growth for Q1, putting us on track for a recession if Q2 follows suit.6
Markets are acting like it’s already happening:
· S&P 500 is down over 20%
· Nasdaq dropped 25%
· The yield curve remains inverted, a classic red flag for recession
Job market data is sending mixed signals:
· Job Openings fell from 8.9M to 8.7M
· Initial Jobless Claims rose slightly to 219K
· March payrolls beat expectations with 228K jobs, but unemployment ticked up to 4.2%
Companies like Caterpillar and 3M are hitting pause on hiring and spending. Consumer demand is still holding up, but if trade tensions continue and inflation sticks around, that could change quickly.
What’s next for the markets
As the trade conflicts continue to escalate, expect more volatility in the markets in the coming weeks, as any positive or negative headlines will move the flow of money. With all this negative outlook on the tariffs, we see some benefits as well and a chance for these tariffs to be a part of the negotiation process. We saw today on the 7th, that countries like India, have already rolled back certain tariffs in response to U.S. demands and Brazil is making efforts to negotiate better deal terms.7 These actions signal that some countries may seek to de-escalate the situation and may find ways to reduce the tariffs.
Looking ahead, the market’s trajectory will be shaped not just by tariffs, but by a range of factors including global economic growth, corporate earnings, and geopolitical stability. While trade tensions remain a major focus, investors will also be watching closely for signs of economic resilience, such as strong consumer spending and continued job growth. If the economic data continues to show strength, it could help offset some of the uncertainty created by trade wars and tariffs.
Additionally, central bank policies and potential interest rate adjustments will play a crucial role in influencing market sentiment, especially as inflation concerns and interest rate hikes remain top of mind.
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