On Wednesday, the market welcomed the news that Trump was partially backtracking, reducing recently imposed tariffs worldwide and confirming his willingness to negotiate, with more euphoria than optimism. After four dark days, with losses of almost 20% since the February highs, palpable fear of a recession, inflation, and a global battle that can only leave losers, any glimmer of hope was a refuge. And money, which was fleeing not only from stocks but also from bonds, quickly clung to it. However, after some hours of reflection and hangover, with the realization that the underlying problem (uncertainty, arbitrariness, activity slowdown, and the inevitable clash with China) not only persists but worsens, discouragement spread across all indices, leading to another session of pronounced losses.
US company stocks fell another 3.5% at the close, while bond yields rose a few tenths to 4.38% on 10-year bonds. The Dow Jones Industrial Average dropped over 1000 points, or 2.5%, and the Nasdaq Industrial fell by 4.31%, erasing half of the gains from the previous day. The S&P 500, after recording the largest increase in 17 years on Wednesday, deflated in the afternoon to 5,268 points. All despite the EU postponing any retaliatory tariff measures for 90 days, despite European products now having a 10% surcharge. And despite inflation data for March confirming better than expected, especially considering that protectionist measures with China were already partially in effect.
The declines were widespread. Airlines like Delta Air Lines, which gained 23% the day before, lost over 9% today. Warner Bros, which also rose 20% the previous day, dropped 13% today. Treasury Secretary Scott Bessent downplayed the situation, saying, "Going up two and down one, going up 10 and down 5, is not a bad ratio," fully aware that in five of the last six sessions, since the so-called 'Day of Liberation,' the markets have closed in the red, with very deep losses.
"Rises in yields alongside currency depreciation are common in emerging markets, but very unusual in the US. There have only been four other episodes in the last 30 years where the dollar depreciated more than 1.5%, with a 10 basis point increase in the 30-year yield," notes a report from Evercore ISI. "This reflects the disappearance of US growth exceptionalism and the diminishing marginal attractiveness of dollar assets as reserves in a context of erratic decision-making in the US."
Doubts, extreme volatility, constant changes in government opinion, firm when Wall Street suffers losses, compliant when the sovereign bond market rises half a point, have led to new losses, erasing the previous day's fleeting gains. And all amid complaints and accusations from the Democratic Party, suspecting that many people close to Trump made millions speculating, as a single message on the president's social media caused S&P 500 increases not seen since 2008 when the Federal Reserve began cutting rates during the financial crisis.
A video posted by the White House Communication team shows the president, in the Oval Office, boasting today to several pilots about how well two of his wealthiest friends did. "Look, he made $2.5 billion, and he $900 million. Not bad at all," Trump said, pointing to investor Charles Schwab and Roger Penske, owners of two Nascar teams. Other friends like MAGA congresswoman Marjorie Taylor Green were also mentioned, following significant asset purchases that surged on Wednesday.
Democratic Senators Adam Schiff and Rubén Gallego have sent a letter to Trump's chief of staff, Susie Wiles, and trade representative Jamieson Greer requesting an investigation into possible conflicts of interest regarding everything that happened on Wednesday. Hours before Trump announced the reduction of tariffs to 10% for all countries except China, which boosted the stock market, he posted on Truth Social: "Don't worry! Everything will be fine. The United States will be greater and better than ever!" and "This is a great time to buy!!! And a series of striking operations between the two messages from the president should lead to an SEC investigation, the regulator whose new chairman was confirmed by the Senate yesterday. "This sequence of events raises serious legal and ethical issues. The president, his family, and his advisors are in a privileged position to access non-public information and use it to base their investment decisions," the senators said in their letter.
In strictly operational terms, Trump leaving general tariffs at 10% instead of 20%, 30%, or 80% does not change the fact that he has erected the highest protectionist wall in a century. And after insulting, punishing, and humiliating his partners, friends, and allies, he has decided to go full force against Beijing with his entire trade arsenal. If on Wednesday he reported that all Chinese products would face an immediate 125% border surcharge, a day later the White House clarified, or rather decided, that the actual figure would be 145%, as the 20% that Trump had already imposed to penalize the few measures against fentanyl entry into the US had to be added. An economic and logistical nightmare, for all ships that have been en route for weeks and whose cargo prices have changed too many times.
Furthermore, the 145% is not even the limit, as this must be added to the 25% surcharge on steel, aluminum, cars, and their components. And these accumulate on top of the nearly 25% on certain Chinese products that Trump imposed during his first term and that Biden never removed. "I am sure we will get along very well. I have great respect for President Xi. He has been a friend of mine for a long time, and we can reach a beneficial agreement for both countries. I look forward to it," surprisingly said Trump about his great rival in his usual bipolar tone, with a mix of praise and criticism. He is convinced that China "is desperate for a deal but doesn't know how to start," and believes that daily attacks from the White House may be the best way to facilitate them.
This Thursday, the renminbi hit its lowest level in 18 years, after the People's Bank of China allowed a controlled depreciation of the official exchange rate for its currency for six consecutive sessions, a controlled depreciation to cushion the impact on its exporters from the tariffs, despite Washington once again urging Beijing not to further devalue its currency, defining it as "a tax on the rest of the world."
"Today is not just about the partial reversal of yesterday's impressive stock gains, the VIX exceeded 50 again, and oil fell sharply," noted Mohamed El Erian, former CEO of the powerful Pimco, referring to the most well-known volatility index. "It is also a reminder that the bond market is still not safe, not only in the US but in other countries as well. This includes the rise in Treasury bond yields on a day of marked risk aversion and, in the UK, the suspension of long-term bond sales by the Bank of England," he wrote on the X network.
The situation has further complicated the task of the Federal Reserve, which now has to deal not only with inflation and the growing specter of a recession but also with fear in the bond markets and all that entails for the financial and banking system. Jeff Schmid, president of the Kansas City Federal Reserve, stated on Thursday that the Fed is monitoring the markets minute by minute to ensure the continuous flow of transactions and liquidity. Beth Hammack, who heads the Cleveland Federal Reserve after decades at Goldman Sachs, tried to downplay the situation, saying that the markets are "tense but functioning." Sharp increases in US bonds, both 10-year and 30-year, usually involve actions by central banks, which are their largest holders. For now, the situation seems under control despite the surges, with a generally positive auction on Wednesday for 10-year bonds and the Treasury placing another $22 billion in 30-year bonds on Thursday, with strong demand, also from abroad.