By SAQIB IQBAL AHMED
NEW YORK- Alarm about the fallout from President Donald Trump’s sweeping tariffs gripped global financial markets last week, with Wall Street’s fear level at a five-year high while financial executives expressed shock and worry about economic growth.
Trillions were wiped off stock market values on Friday as investors said they were fearful about the risk of recession ahead.
US stock markets slumped more than 10 percent on Thursday and Friday, with the Nasdaq Composite now in a bear market, as China imposed fresh tariffs on all US goods, sparking worries of an extended global trade war.
The tariffs prompted “shellshock” among business leaders weighing the potential economic damage, a senior financial executive said. Another executive described a typical industry response to the announcements: “Oh my God, terrible!” Both executives declined to be identified discussing the policies.
The Cboe Volatility Index an options-based gauge of stock investors’ anxiety about the market’s near-term outlook, jumped 15.29 points to end at 45.31, its highest close since April 2020.
“A VIX at 40 is a sign of fear for sure,” said Joe Tigay, portfolio manager for Rational Equity Armor Fund.
“Usually you see a 40 when there’s something more than the usual selloff … some sort of credit risk, margin risk, something that could cause a contagion that could spill over and across to other asset classes,” Tigay said.
Investors, who have been battered by a sharp selloff this year – the S&P 500 is down nearly 14 percent for the year – have been keeping an eye on the volatility gauge as an indicator of market stress.
“Tariff uncertainty is likely to rattle markets for the foreseeable future,” said Jeff O’Connor, head of market structure at Liquidnet.
Friday’s 6 percent S&P 500 drop brought the index close to the 7 percent circuit breaker threshold that would have triggered a 15-minute trading halt, intended to pause panic selling to avoid a downward stock-market spiral.
Trump’s team has characterized the market turbulence as an adjustment that would prove beneficial in the long run, with Treasury Secretary Scott Bessent linking the selloff to the emergence of China’s DeepSeek artificial intelligence tool earlier this year.
The selloff was broad with everything from large-cap to small-cap stocks hemorrhaging. An index of expected stock market correlation closed at a 2-year high on Friday, underlining investors’ view that stocks will continue to gyrate in sync.
On Friday, the jump in anxiety was broad with no market spared.
In currency markets, euro one-month implied volatility shot up to a two-year high of 10.45 as the common currency fell about 1 percent against the dollar.
The greenback, which slumped to a six month low against a basket of currencies on Thursday, has been smacked around by rapidly flowing news on Trump’s tariffs and countermeasures from other countries.
“FX pricing has swung wildly and the dollar’s movement has been the opposite of smooth,” said Helen Given, director of trading at Monex USA in Washington.
Meanwhile, US Treasury yields fell, with the yield on the benchmark US 10-year Treasury note falling to a six-month low of 3.86 percent, slipping below the widely watched 4 percent mark.
Safe-haven buying of Treasuries has sent yields, which move inversely to prices, down sharply in recent weeks, driven by concerns about recession and shifting expectations about potential Federal Reserve policy.
Trump’s new tariffs are “larger than expected” and the economic fallout, including higher inflation and slower growth likely will be as well, Federal Reserve Chair Jerome Powell said on Friday. Trump on Friday called on Powell to cut interest rates, saying it was the “perfect time” to do so.
