Financial markets experienced significant turbulence following US President Donald Trump’s announcement of sweeping tariffs on April 2. Dubbed ‘Liberation Day’, the tariffs imposed a 10% levy on all imported goods into the US, with additional reciprocal tariffs targeting 90 countries. This move sent shockwaves through global financial markets, leading to one of the most severe sell-offs since the start of the pandemic in 2020.
In the days following the announcement, US markets plummeted. The S&P 500 fell 4.9% on April 3 and an additional 6.0% on April 4. The Dow Jones Industrial Average and the Tech-heavy Nasdaq 100 Composite also suffered significant losses during the two days following Trump’s announcement, with the Dow Jones Industrial Average dropping almost 4,000 points and the Nasdaq 100 Composite entering bear market territory given its 2,000- point decline.
This two-day period resulted in a loss of approximately $6.6 trillion in market value. Other markets mirrored this downturn as Germany’s DAX fell 11.8%, Japan’s Nikkei 225 dropped 13.7% and Hong Kong’s Hang Seng Index declined by 14.5% between April 2 and April 7.
The tariff announcement had far-reaching effects on the prospects of the global economy. China imposed a 34% retaliatory tariff on April 4, exacerbating trade tensions.
The bond market also experienced volatility. Initially, demand for sovereign bonds rose, pushing yields down. However, a sharp reversal occurred, with the yield on the 10-year Treasury surging to 4.5% by April 9, the biggest three-day jump since 1982. This spike in yields shocked traders and government officials, prompting emergency meetings to calm aggressive selling.
Facing mounting pressure, Trump announced a 90-day suspension of the tariffs on April 9. This pause aimed to provide a window for trade negotiations and alleviate market fears. The announcement led to a swift market rebound. The S&P 500 surged 9.5% in the days following the pause. The Nasdaq 100 Composite and the Dow Jones Industrial Average also recovered buoyed by strong performances in artificial intelligence and semiconductor sectors. Companies such as Nvidia and Palantir posted significant gains. However, small-cap stocks, represented by the Russell 2000 index, remained down by 5.7% year-to-date, indicating ongoing challenges for smaller companies.
Investor sentiment improved with the tariff pause and lower-than-expected inflation data for April. Approximately 76% of S&P 500 companies reported earnings above estimates for the first quarter of 2025 with an aggregate earnings surprise of 9.3%, surpassing both 5- and 10-year averages.
Last week, following talks held between both US and Chinese trade officials, the US lowered tariffs on Chinese goods from 145% to 30% while China reduced its tariffs on US products from 125% to 10%. Financial markets responded positively to the announcement.
In the two-day period following the April 2 tariff announcement $6.6 trillion was lost in market value- Simon Gauci Borda
The S&P 500 rebounded, erasing losses of previous weeks and closing slightly higher than the levels seen at the start of the year.
Investor sentiment improved, with analysts reversing their recession prediction and projecting modest GDP growth for the US. However, analysts cautioned the agreement’s temporary nature as high tariffs meant that long-term uncertainties would persist.
The period following Trump’s April 2 tariff announcement was marked by extreme volatility in global financial markets. While the initial reaction was a severe sell-off, the subsequent 90-day tariff pause, and signs of trade negotiations led to a robust recovery. However, the episode underscored the markets’ sensitivity to geopolitical developments and the importance of clear, stable trade policies for investor confidence.
Furthermore, while markets have seemed to have met the initial round of talks between the US and China positively, the final terms of the deal and any removal of tariffs are far from a done deal. However, the positivity seen in markets of late can be somewhat justified given the positive momentum of trade talks together with the potential of further easing in monetary policy and a second half of the year which could see the US reduce taxes and enter a period of deregulation.
The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to constitute any advice or recommendation with respect to such financial instruments. Curmi and Partners Ltd. is a member of the Malta Stock Exchange and is licensed by the MFSA to conduct investment services business.
Simon Gauci BordaSimon Gauci Borda is a fixed income research analyst at Curmi and Partners Ltd.