Markets hit by US recession fears

Economic fears have sparked a renewed sell-off in stocks, with US tech giants diving after President Donald Trump declined to rule out a recession.

Global markets were slammed as US economic worries resurfaced, with technology giants tumbling after US President Donald Trump declined to rule out a recession.

Adding to woes, investment bank Goldman Sachs cut its outlook for the US economy and HSBC and Citi downgraded their ratings on US stocks.

After US stocks dived on Monday, Australia’s S&P/ASX 200 index closed down 0.9 per cent at a seven-month low of 7890.1 points but recovered strongly from an intraday low of 7818.3.

US stock index futures and Bitcoin saw similar rebounds despite a lack of positive news.

Renewed risk aversion in global markets this week came as the US seemed determined to press on with its aggressive trade policy despite the increasing risk of an economic downturn amid concern that tariffs will lift prices and potentially limit interest rate cuts in the US.

On Wall Street, the S&P 500 fell 2.7 per cent to 5614.56 points, its lowest point since September.

The Nasdaq fell 4 per cent to 17,468.32 points, its biggest one-day fall since September 2022.

As of Wednesday, the Australian market had fallen as much as 9.3 per cent from its mid-February high of 8615.2 points despite the start of interest rate cuts by the Reserve Bank.

“A pullback of this magnitude seemed unimaginable just four weeks ago,” said IG market analyst, Tony Sycamore. “However, as circumstances have evolved, so too has the market’s response.”

Traders and financial professionals work on the floor of the New York Stock Exchange at the opening bell in New York City. Picture: Charly Triballeau/AFP

Trump’s tariffs have been implemented more quickly and broadly than anticipated.

Most expected a slower increase in tariffs on China and didn’t anticipate tariffs on Mexico and Canada. The tariffs on Mexico and Canada have been dialed back to some extent but reciprocal tariffs across US trading partners are “now a given”, Mr Sycamore added.

When asked in a Fox News interview on Sunday about the chance of a recession, the US President said: “I hate to predict things like that… There is a period of transition, because what we’re doing is very big…” Mr Trump appeared to echoing US Treasury Scott Bessent’s comments over the weekend from that the US could enter a “detox period” and downplay his sensitivity to the US stock market.

“Look, what I have to do is build a strong country. You can’t really watch the stock market.

“If you look at China, they have a 100-year perspective,” he said.

In an address to Congress last week, Trump said tariffs would only cause “a little disturbance.”

“These comments have intensified investor growing fears about a recession,” Mr Sycamore said.

“Market sentiment has rapidly shifted from post-election optimism to serious concerns about recession, fuelled by ongoing policy uncertainty and a rolling stream of soft economic data.”

US tech giants suffered outsized falls on Monday with Nvidia down 5.1 per cent, Tesla down 15 per cent and other “Magnificent 7” stocks including Apple, Alphabet and Meta down almost 5 per cent.

Volatility continued to spike with the VIX index up 4.5 percentage points to a three-month high of 27.86 per cent as the Nasdaq fell further into “correction” territory, 13.4 per cent below its December peak. The S&P 500 was 8.6 per cent below its record closing high of 6144.5 last month.

The sell-off in stocks sparked a “flight to safety” in bonds and currencies. The 10-year US Treasury yield fell 8.8 basis points to 4.21 per cent and the Japanese yen hit a five-month high against the US dollar. But gold stalled around $US2,900 per ounce after rising about 55 per cent the past two years.

Underscoring fears that tariffs will have a negative impact on the US economy, Goldman Sachs slashed its 2025 growth forecast to a below-consensus 1.7 per cent and increased its inflation forecast “both on the back of more adverse tariff assumptions’, chief economist Jan Hatzius said.

His trade policy assumptions have become “considerably more adverse and the administration is managing expectations towards tariff-induced near-term economic weakness.”

“We now see the average US tariff rate rising by 10 percentage points this year, twice our previous forecast and about five times the increase seen in the first Trump administration,” Mr Hatzius said.

While 25 per cent tariffs on Canada and Mexico were softened soon after their implementation, the next few months are due to bring a critical goods tariff, a global auto tariff, and a ‘reciprocal” tariff’.”

Mr Hatzius said the reciprocal tariff matters most because the Administration views Europe’s value-added tax of 20 per cent as equivalent to a tariff - even though it is imposed equally on imported and domestically.

“If applied mechanically, a VAT-inclusive reciprocal tariff alone could raise the average US tariff rate by 10 percentage points or more,” he said.

“Carveouts will probably lower this number, but if they are less widespread than we expect, the average tariff rate could rise as much as 15 percentage points.

Citigroup strategists downgraded US stocks to neutral from overweight while upgrading China to overweight, saying US exceptionalism is at least on pause.

Citi raised China to overweight as the country looks attractive even after the rally.

HSBC strategists cut US stocks to Neutral while upgrading European stocks to Overweight as they saw Eurozone fiscal stimulus as “a potential game changer”.

However, they said slightly softer US economic growth could be a “net positive for equities if it forces the market to price in a more accommodative Fed and lower bond yields.”

US recession fears spook markets. Picture: Charly Triballeau/AFP

China’s latest retaliatory tariffs on US agricultural products took effect on Monday.

US tariffs of 25 per cent tariffs on steel and aluminium were due to start on Wednesday.

US “reciprocal tariffs” on other regions, including the European Union were due to start on April 2.

“Whether we’re closer to a point where much of the forced selling is reaching an endpoint is a debate on the floors, but aside from the ‘unconvincing’ 1 per cent late session bounce, the intraday tape of Nasdaq 100 or S&P 500 futures certainly doesn’t offer the sort of conviction to really believe we’re nearing a capitulation point,” said Pepperstone’s Head of Research, Chris Weston.

Originally published as Markets hit by US recession fears