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Key Points
- US stock indexes have registered their biggest daily percentage drops since the start of the COVID-19 pandemic.
- The Australian stock market also saw losses, with a level of volatility described as “rare”.
- The stock market movements came after Donald Trump announced tariffs on nearly 180 US trading partners.
Nearly $2.5 trillion got wiped out from the US stock market on Thursday after US President Donald Trump made his much-anticipated announcement on tariffs levied on America’s nearly 180 trading partners across the world.
Trump announced a 10 per cent tariff on most US imports and much higher levies on dozens of other countries, responding to what the White House said was a “national emergency”.
The White House said increasing was critical to US national security and the tariffs were “necessary to ensure fair trade, protect American workers, and reduce the trade deficit”.
The announcement resulted in stock markets nosediving globally, with Wall Street recording its worst plunge since the onset of in 2020 and the Australian stock market also notably down.
‘A very hard reaction’
Edith Cowan University senior lecturer in geopolitics and international trade Naoise McDonagh said the losses were “a very hard reaction driven by the fact that Wall Street failed to properly price in” the extent of Trump’s tariffs.
Australia’s ASX was down almost one per cent on Thursday but had fallen by almost 2.5 per cent (2.44) at close of business on Friday, setting a new 100-day low.
Meanwhile, the All Ords, Australia’s oldest share-price index, fell by 2.55 per cent at close of business on Friday.
Speaking to SBS News on Friday — when the market had dropped by about 1.5 per cent — AMP deputy chief economist Diana Mousina said it still would not be considered to be in “bearish territory”, i.e. a situation when markets are characterised by pessimism and caution.
“We can get daily moves of this size”, she said, adding that the Australian stock market had been more resilient than the American.
Nonetheless, she described the volatility in the market on Thursday and Friday as “rare”.
Stock market movements in the US were far more dramatic.
Major US stock indexes registered their biggest daily percentage drops since 2020 on Thursday and the dollar weakened as some economists warned the trade tariffs could lead to a global recession.
S&P 500 companies lost a combined $2.4 trillion in stock market value.
The ASX had fallen by 2.44 per cent at close of business on Friday, following on from the announcement that the United States would impose a 10 per cent import tax on all Australian goods. Source: AAP / Bianca De Marchi
Mousina described the 4.8 per cent fall as “a really deep fall for one day’s trading”.
“In the US, the tech sector was hit the worst, followed by communication and consumer discretionary,” she said.
She said the stock market movements had been especially dramatic because they exceeded market expectations.
“The market responds to whether things are better or worse than expected, it is always relative based on expectation,” she said.
“The tariffs announced were a bit higher — I think there was some expectation that it might not be as bad as that.”
Stock market alternatives
Mousina said investors may respond differently depending on the timeline for their stock investments.
“Those investing long term may say, ‘Yes my portfolio is going to take a hit in the short term’, but there are offsets potentially through things such as cash, exposures, or commodities,” she said.
“For short-term investors, people who rely on their superannuation, it is obviously difficult,” she said, but added that savvy investors could put money in other assets such as bonds.
“One of the offsets to the decline in shares is the increase in the value of bond portfolios,” Mousina said.
McDonagh said this was already happening, with investors turning away from volatile stock markets and reallocating funds to US government bonds (Treasuries).
“Treasuries have reduced significantly, their interest rate has dropped now over the past couple of days, very significantly… so that’s one sign that tells you, investors are pulling money out of stock market and they put it into treasuries.”
Meanwhile, commodities such as gold reached a record high overnight.
“Gold is just seen as a sort of a hedge to inflation, a hard commodity, it is highly tradeable and has an intrinsic value,” Mousina said.
She said some investors may see the falls as an opportunity to invest in more reliable and reputable stocks but pointed out that Trump’s tariffs may have an even greater impact on the markets into the future and there may be further losses to be seen.
What to expect next
McDonagh said until the full extent of how other countries respond to the , it was difficult to predict what would happen in global stock markets.
“Everyone needs to kind of hold off a little bit and just see what happens with the negotiations over the coming weeks and months,” he said.
He said there was potential for Australia’s mining industry to be affected in the future.
“Stocks that are dependent on the Chinese economy will probably be most at risk of going down over the next few weeks and months,” McDonagh said.
“Australian stocks that are heavily dependent on China will face a lot of headwinds.”
He said many of those included companies with investments in Vietnam, where 46 per cent tariffs were in place.
“In trade, tit-for-tat is normally the rule,” McDonagh said .
“And the US has said, if countries respond, they will further respond.
Mousina said there were indicators that the market may not shift too much more in the next few days, at least.
“If you look at futures markets, futures markets is basically futures trading, so what trade is saying share market might do tomorrow, so not just tomorrow but over the next day of trading after it closes today, that’s actually pointing up for Australia, which is good news.
“It doesn’t necessarily mean that it will continue to happen, but the US futures market program at the moment is still a very slight negative.”
The information in this article is general in nature and is not intended as financial advice; you should consult with a licensed professional to make the decisions that are right for you.
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