Weekend Update #224
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The S&P 500 suffered its steepest two-day drop since March 2020, erasing roughly $5 trillion in market value. The index has declined nearly 11% since Wednesday’s close, following President Donald Trump’s “Liberation Day” announcement outlining a sweeping reciprocal tariff plan. The news rattled markets, with 10-year Treasury yields falling below 4% for the first time since October. The Volatility Index (VIX) hit 45, the highest level since April 2020.
Equities extended losses Friday after Federal Reserve Chair Jerome Powell warned that the economic impact of the new tariffs is likely to be significantly larger than anticipated—and stressed the Fed’s responsibility to ensure the policy shift does not exacerbate inflationary pressures.
Both the Nasdaq 100 and the Russell 2000 have now entered bear market territory, each down more than 20% from recent highs. Implementation of the “Liberation Day” plan will push the average U.S. tariff rate above 20%—a level not seen in over a century.
Canada responded Thursday with 25% retaliatory tariffs on U.S.-made vehicles, targeting only those that fail to meet USMCA compliance standards. China responded more aggressively, imposing a 34% tariff on all U.S. goods and restricting exports of rare earth metals to the U.S. President Donald Trump reaffirmed that his economic policies “will never change” and criticized China for retaliating against his sweeping tariff measures, signaling trade tensions could continue to escalate.
U.S. factory activity contracted in March for the first time this year, while input prices accelerated for a second consecutive month as tariff-related pressures continued to ripple through the economy. The ISM manufacturing index fell 1.3 points to 49—below the 50 threshold that signals expansion and slightly below expectations. The prices-paid component surged 7 points to 69.4, the highest since June 2022, bringing the two-month gain to 14.5 points—the sharpest increase over that span in four years. New factory orders dropped to 45.2, their lowest since May 2023, while shrinking backlogs and weaker bookings led to the first production decline of the year. Factory employment also contracted at its fastest pace since September.
Labor market data painted a mixed picture. The February JOLTS report showed job openings fell to 7.57 million from a revised 7.76 million in January, missing the 7.66 million consensus. The decline was led by pullbacks in retail trade, financial services, and hospitality. Although openings have stabilized near pre-pandemic levels, policy uncertainty tied to President Trump’s tariff agenda is clouding business investment plans, posing potential headwinds for job creation and broader economic momentum.
March’s nonfarm payrolls offered a much-needed bright spot, with employers adding 228,000 jobs—well above the 140,000 consensus and exceeding even the most optimistic forecasts, pointing to surprising labor market strength. The unemployment rate edged up to 4.2% and the participation rate ticked higher, while the household survey showed a strong rebound following February’s sharp drop.
However, the Challenger report added a cautionary note, revealing that U.S. employers announced 275,240 job cuts in March—a 205% year-over-year surge, largely driven by workforce reductions from the Department of Government Efficiency. Hiring plans also weakened sharply, with first-quarter totals marking the slowest start to the year since 2012.
Popular prediction market Kalshi is now pricing a 62% chance of a recession this year, reflecting growing investor concern amid tightening financial conditions and escalating trade tensions.
Friday’s Close (Weekly Performance)
S&P 500 5,074.08 (-9.08%)
Nasdaq 15,587.79 (-10.02%)
Dow Jones 38,314.86 (-7.86%)
Thank you Blue Room Senior Analyst NICK PEART.
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