MW Recession fears roil markets amid Trump's tariffs. What investors need to hear from Fed's Powell on Friday.
By Isabel Wang
The Fed chair's remarks and the March nonfarm-payroll report on Friday will need to deliver for a stock market reeling from a brutal selloff
It seems there are very few places to hide in the financial markets right now.
The U.S. stock market was in free fall on Thursday, with investors getting crushed in a seemingly relentless selloff after President Donald Trump's announcement of sweeping tariffs stoked fears that an escalating trade war could lead to a recession in the world's largest economy.
The S&P 500 SPX was tumbling 3.3% in midday trading, on pace for its worst day since September 2022, while the Dow Jones Industrial Average DJIA was falling over 1,200 points, or 2.8%, and the tech-heavy Nasdaq Composite COMP was slumping 4.5%, according to FactSet data.
Small-cap stocks were also getting slaughtered, with the benchmark Russell 2000 index RUT off over 5.5% to trade at 1,931 as of 12 p.m. Eastern time, according to FactSet. The index is on pace to officially enter bear-market territory, with the threshold at 1,953.62 for the small-cap index to mark a 20% decline from its recent peak at the close.
See: Vietnam, China, Europe ETFs under pressure after Trump's reciprocal tariffs
Beyond the U.S. stock market, Trump's latest tariffs were also roiling markets for things like some international equities, crude oil (CL00) and bitcoin (BTCUSD). Even gold prices (GC00) (GCM25), which have been soaring recently as investors sought a safe haven from market volatility, were retreating from record highs on Thursday.
The U.S. dollar was also tumbling, which some analysts think could be an alarming sign of serious problems to come, dimming the greenback's safe-haven appeal. The ICE U.S. Dollar Index DXY, a key gauge of the dollar's value against a basket of six foreign currencies, was off by 1.8% at 101.93 on Thursday.
Trump on Wednesday afternoon announced a 10% universal tariff on imported products from all other countries, along with even higher "reciprocal" levies on dozens of trading partners including the European Union, China and Japan. Investors worry that the aggressive and far-reaching tariff policy could plunge the U.S. and the world into a recession if Trump follows through with the plan.
"While we have made it past [Trump's] 'Liberation Day,' there is still no clarity on tariffs. ... For a stock market that was craving certainty, there is now even more ambiguity than before this announcement," said David Bahnsen, chief investment officer at the Bahnsen Group.
"If the current slate of tariffs holds, a recession in the second or the third quarter of 2025 is very possible, as is a bear market [for U.S. stocks]. The question is, does President Trump seek some sort of off-ramp for these policies if and when we see a bear market in the stock market," he wrote in emailed commentary on Thursday.
See: Trump's tariffs are having a surprising impact on the U.S. dollar. Here's how investors can benefit.
Investors also want to know how Trump's tariff policy could affect the Federal Reserve's plan to continue cutting interest rates this year. Fed-funds futures traders on Thursday were pricing in around four rate reductions by the end of 2025, according to the CME FedWatch Tool.
That makes a speech by Fed Chair Jerome Powell on Friday the next major event for the financial markets. "Fed Chair Powell speaks tomorrow and may offer some insights as to how the central bank is viewing this very challenging policy predicament," said Seema Shah, chief global strategist at Principal Asset Management.
Levies on imported goods rolled out by the White House are expected to drive inflation while also raising the chances of a recession, putting policy makers in a very tricky spot, because they can't cut interest rates to stimulate growth when inflation remains sticky.
But some market analysts worry that investors will not receive any meaningful guidance regarding the Fed's monetary-policy path from Powell on Friday.
"Powell has such a difficult job right now. ... [Policy makers] don't want to be too forward-looking, and they don't want to provide commentary on public policy, especially when those policies are not really clear on, one, whether they are permanent, and number two, what the actual quantitative impact is going to be," said Don Calcagni, chief investment officer at Mercer Advisors.
"My expectation would be Powell is going to really dodge a lot of that [tariff impact] and focus on the data that we're currently seeing," he told MarketWatch via phone on Thursday.
Powell is scheduled to speak on the economic outlook at the Society for Advancing Business Editing and Writing Annual Conference on Friday at 11:25 a.m. Eastern time.
Investors were also awaiting the release of the March nonfarm-payroll report at 8:30 a.m. Eastern time on Friday. The report from the Bureau of Labor Statistics is expected to show payroll growth of 140,000 in March, down slightly from 151,000 in February. The unemployment rate is forecast to remain unchanged at 4.1%.
"Although they may feel somewhat irrelevant in the context of the tariffs announcements made [Wednesday], March nonfarm payrolls are incredibly important," said Julien Lafargue, chief market strategist at Barclays Private Bank.
With recession fears mounting, a weaker-than-expected employment report could be "a nail in the coffin" for the U.S. economy, while a more encouraging reading could also be dismissed as being "outdated" given the prospect of significant tariffs hitting the labor market, Lafargue said. "In this context, it feels like this is a lose-lose situation for markets."
However, with market expectations so low, there's also "a slim chance" that investors use this data release as a catalyst for a short-term rebound in the stock market, he added.
Now read: March madness? U.S. jobs report could show first signs of trade-war fallout.
-Isabel Wang
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(END) Dow Jones Newswires
April 03, 2025 13:33 ET (17:33 GMT)
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