Bear market: Stock prices crater on trade war worries

U.S. stocks closed sharply lower, with the blue-chip Dow shedding more than 2,200 points to enter correction territory and the tech-heavy Nasdaq falling into a bear market, on trade war worries.

China’s commerce ministry said the country will impose a 34% tax on all U.S. products, matching President Donald Trump's levy on Chinese goodscoming into the U.S. China's retailiatory tariff is effective April 10. China also added several companies to its so-called “unreliable entities list,” which asserts that the firms have broken market rules or contractual commitments. China opened an antitrust investigation into DuPont on Friday. DuPont shares shed 12.75%.

UK, Australia and Italy also had talks Friday to discuss potential damage from tariffs, reports said.

Retaliation raises the odds Trump's aggressive tariff plan will spark a full-blown trade war, reignite inflation and slow the economy. Other countries around the world have promised retaliatory tariffs, too. JP Morgan now sees a 60% chance of a U.S. recession this year.

Even so, Federal Reserve Chairman Jerome Powell kept his cool, saying in a speech Friday tariffs will increase inflation and slow the economy, but the central bank would wait and see the fallout of the tariffs before making any interest rate decisions.

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The Dow plunged 5.5%, or 2,231.07 points, to 38,314.86 for its largest single-day decline since June 2020 during the Covid-19 pandemic and bringing the index around 15% off its decline from its record high and into a correction. A correction is defined as at least 10% lower than a record high.

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The broad S&P 500 dropped 5.97%, or 322.44 points, to 5,074.08 to post its largest one-day drop since June 2020 and off about 17% from its record top. The Nasdaq tumbled 5.82%, or 962.82 points, to 15,587.79, putting the index into a bear market, defined as at least 20% down from its closing peak. The Nasdaq's bear market line was at 16,139.11, according to Dow Jones Market Data.

All three major indexes ended the week in the red, with the S&P 500 and Nasdaq seeing their sixth weekly drop in seven. The S&P 500 had its worst week since early 2020 at the start of the pandemic.

“Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell said in prepared remarks. “We are well positioned to wait for greater clarity before considering any adjustments to our policy stance. It is too soon to say what will be the appropriate path for monetary policy.”

He noted "the size and duration of these effects remain uncertain.”

The remarks came shortly after Trump called on Powell to “stop playing politics” and cut interest rates because inflation is down. In February, annual inflation rose 2.8%, down from January's 3% but above the Fed's 2% target.

Companies with large exposure to China like iPhone maker Apple slumped after China announced its retaliatory tariff. Apple fell 7.29%. China accounts for around 80% of Apple’s production capacity with about 90% of iPhones assembled in the country, according to estimates from Evercore ISI.

Chip stocks also came under attack after Trump said on Thursday the sector could still see tariffs despite its initial exclusion on Wednesday.

Minor comfort came from a better-than-expected March jobs report before the market opened. Nonfarm payrolls increased 228,000, up from the revised 117,000 in February and better than the Dow Jones estimate for 140,000, according to the Bureau of Labor Statistics. The unemployment rate, though, inched up to 4.2%, just above forecasts for 4.1% and the highest since November 2021. The labor force participation rate increased, but wage growth dipped.

"The market needed today’s number. Everyone knows that economic weakness is coming, but at least we can be reassured that the labor market was robust coming into this policy-driven shock and therefore, the slowdown should not be overly steep," said Seema Shah, chief global strategist at Principal Asset Management.

Secretary of State Marco Rubio also said Friday he was confident markets would adjust to tariffs and rebound.

The benchmark 10-year yield fell to 4.007%, crossing again above the 4% level, as investors fled to safer assets. As Treasury prices rise, yields drop.

Oil prices fell to the lowest level since 2021 as investors feared a recession would dampen demand. At the same time, the Organization of the Petroleum Exporting Countries and its allies said they'll increase oil production beginning next month.

Friday's losses come on the heels of Thursday's nosedive after Trump announced late Wednesday sweeping 10% tariffs on all countries, effective April 5, and even higher reciprocal tariffs on a list of other countries. The high reciprocal tariffs caught investors, who thought perhaps Trump was bluffing, off guard. In the days leading up to Trump's announcement stocks had risen.

"It is still early in the year and there is time for cooler heads to prevail and for much of the benefits of deregulation and tax cuts to improve investor sentiment, however, in the short run it seems as if everyone’s worse fears have been realized," said Chris Zaccarelli, chief investment officer for Northlight Asset Management.

With the average global tariff at approximately 18%, U.S. economic growth will slow to around 1% for the next several quarters, with inflation rising back to 5%, estimated Mark Dowding, BlueBay chief investment officer at RBC Global Asset Management.

"However, if the government announces trade deals to justify reversing most of the tariffs relatively quickly, continued expansion in 2025 would be more likely than recession," said Bill Adams, chief economist at Comerica Bank. If that happens, Adams pegged a one in three chance of a recession over the next 12 months.

Trump said on Friday Vietnam leader To Lam wants to cut Vietnam’s tariffs down “to ZERO if they are able to make an agreement with the U.S.” News of the call pushed Nike shares up 3%. Nike makes much of its athletic gear in Vietnam.

"While there is short-term hysteria around tariffs, the hope may be that this will give way to medium-term acceptance," Dowding said. "However, the long-term outlook remains extremely unclear."

Corporate news

• Uncertainty and volatility in the markers forced ticketing marketplace StubHub and payments platform Klarna to delay its IPO plans, according to the WSJ.

• Amazon and Applovin are among potential buyers of TikTok outside China. Trump extended the deadline for an American company to get a stake in TikTok, saying in a social media post Friday that he was issuing an executive order allowing the Chinese-owned app to keep operating for another 75 days.

• Nissan reversed an earlier decision to cut production at a Tennesee plant to one shift from two. It said it would keep both shifts now to shore up local production in the U.S. since tariffs will affect cars imported from Mexico and Japan.

• Stellantis, maker of Jeep, Dodge and Chrysler branded vehicles, got an S&P credit downgrade. The car maker on Thursday said it would pause some production in Mexico and Canada and temporarily laid off about 900 workers due to tariffs.

Cryptocurrency

After Bitcoin posted its worst first-quarter performance since the first three months of 2018, according to Dow Jones Market Data, the digital currency's starting the next three months on rocky ground, too.

The digital unit was able to claw back some ground, last up 0.92% at $83,915.98 after a choppy day amid the tariff uncertainty.