Tariff concerns drag down the market, global stock indices post their worst quarterly performance in over a year

According to the Zhitong Finance APP, as U.S. President Trump's destructive trade policies and escalating concerns about stagflation drive investors towards safe havens, the market's "roller coaster" quarter is coming to an end. On Monday, Asian stock markets plummeted, and global stock indices recorded their worst quarterly performance since September 2023; meanwhile, the three major U.S. stock index futures fell nearly 1% in pre-market trading. In contrast, as investors seek safe-haven assets, Bloomberg's measure of U.S. government bonds has risen 2.6% year-to-date, while gold continues to hit record highs.

Against the backdrop of an expanding global trade war and an increasing likelihood of a significant slowdown in U.S. economic growth, global fund managers are reducing risk or rebalancing their portfolios. Notable economist Ed Yardeni has raised the probability of a stagflation scenario to 45% and warned of a potential economic recession, providing a similar probability forecast for further adjustments in the U.S. stock market.

Trump told reporters that he plans to impose reciprocal tariffs on "all countries," shattering market hopes for a limited range of tariffs to be implemented by the U.S. on April 2. Meanwhile, economic data released last Friday showed a sharp decline in U.S. consumer confidence, weak spending, and rising prices, exacerbating concerns about the broader economic impact of trade policies.

In a report, Yardeni stated, "The anticipated consequences of Trump's 2.0 tariff regime have weakened our previous optimism. It has also undermined confidence in the U.S. economy among everyone from CEOs to consumers to investors."

The shift in the theme of American exceptionalism has weakened the dollar's status as a safe haven, with the dollar weakening against most major currencies this year. Investors have turned to the euro, anticipating that European governments will increase spending to boost the economy; the yen has also appreciated against the dollar as the Bank of Japan hinted at continuing interest rate hikes. The weakening dollar has also helped emerging market assets outperform the broader market. Goldman Sachs economists now predict that both the Federal Reserve and the European Central Bank will cut interest rates three times this year due to trade restrictions harming economic growth momentum.

As some investors reduce risk ahead of the tariff announcement, others are preparing to re-enter the market, especially if the details of the tariffs prove to be less severe or indicate that the tariff dust that has disrupted the market for months is settling. Some strategists say that pessimism may ease in the second quarter.

Bob Savage, head of market macro strategy at Bank of New York Mellon in New York, stated, "We expect that any rebound in risk over the next few weeks will be related to good news—either because the tariffs are not as severe as expected or because negotiations have delayed the tariffs. The retreat of risk in the first quarter led to a short-term rebound."