ASX tumbles after Wall Street’s $4 trillion meltdown
Even gold, which hit records recently as investors sought something safer to own, pulled lower. Some of the worst hits walloped smaller US companies, and the Russell 2000 index of smaller stocks dropped 6.6 per cent to pull more than 20 per cent below its record.
Investors worldwide knew Trump was going to announce a sweeping set of tariffs late on Wednesday, and fears surrounding it had already pulled Wall Street’s main measure of health, the S&P 500 index, 10 per cent below its all-time high. But Trump still managed to surprise them with “the worst-case scenario for tariffs,” according to Mary Ann Bartels, chief investment officer at Sanctuary Wealth.
Trump announced a minimum tariff of 10 per cent on imports, with the tax rate running much higher on products from certain countries like China and those from the European Union. It’s “plausible” the tariffs altogether, which would rival levels unseen in roughly a century, could knock down US economic growth by 2 percentage points this year and raise inflation close to 5 per cent, according to UBS.
Such a hit would be so big that it “makes one’s rational mind regard the possibility of them sticking as low,” according to Bhanu Baweja and other strategists at UBS.
Wall Street had long assumed Trump would use tariffs merely as a tool for negotiations with other countries, rather than as a long-term policy. But Wednesday’s announcement may suggest Trump sees tariffs more as helping to solve an ideological goal than as an opening bet in a poker game. Trump on Wednesday talked about wresting manufacturing jobs back to the United States, a process that could take years.
If Trump follows through on his tariffs, stock prices may need to fall much more than 10 per cent from their all-time high in order to reflect the recession that could follow, along with the hit to profits that US companies could take. The S&P 500 is now down 11.8 per cent from its record set in February.
“Markets may actually be underreacting, especially if these rates turn out to be final, given the potential knock-on effects to global consumption and trade,” said Sean Sun, portfolio manager at Thornburg Investment Management, though he sees Trump’s announcement on Wednesday as more of an opening move than an endpoint for policy.
Trump offered an upbeat reaction after he was asked about the market’s drop as he left the White House to fly to his Florida golf club on Thursday.
“I think it’s going very well,” he said. “We have an operation, like when a patient gets operated on and it’s a big thing. I said this would exactly be the way it is.”
AP, Bloomberg
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