On a tumultuous Wednesday, U.S. stocks experienced a significant downturn as investors reacted to Federal Reserve Chair Jerome Powell’s cautionary remarks regarding the unprecedented nature of President Donald Trump’s tariffs. Powell’s warnings of potential economic repercussions, stated during a speech in Chicago, emphasized the looming uncertainties surrounding the tariffs. The Dow Jones Industrial Average fell sharply by 900 points, translating to a 2.23% drop, while the S&P 500 declined by 3.15%. Notably, the tech-heavy Nasdaq Composite suffered even more, plummeting by 4.4%.
During his address, Powell expressed concerns about the larger-than-anticipated increases in tariffs and hinted that the economic fallout might also exceed expectations. He explained that these consequences could manifest in the form of higher inflation rates coupled with slower economic growth. This assessment has heightened anxieties on Wall Street, as traders grapple with the Trump administration’s inconsistent trade policies and their broader implications.
Recent weeks have seen a rise in apprehension among consumers and businesses alike as they begin to confront the reality of Trump’s tariffs. Notably, March saw a surge in retail spending at U.S. stores, which was marked as the strongest monthly growth seen in over two years. This spike was primarily driven by consumers’ attempts to preemptively purchase goods before the imposition of the proposed tariff hikes.
Particularly affected was semiconductor maker Nvidia (NVDA), which suffered a more than 10% decline in stock value after announcing a significant projected loss of $5.5 billion. This stark forecast was a direct result of new restrictions imposed by the U.S. government on exporting its artificial intelligence chips to China. This situation underscores the escalating competition between the U.S. and China for dominance in the AI sector—a competition that dramatically intensified following the rise of DeepSeek, an emergent AI firm recognized for its disruptive ChatGPT-like technology.
Analysts and investment experts, including Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, expressed cautious optimism that trade negotiations may eventually yield results. However, they equally recognized that near-term tensions between the U.S. and China are unlikely to dissipate soon. Market participants are presently analyzing developments closely, particularly in light of the Trump administration’s recent investigations into imports of pharmaceuticals and semiconductor chips, which could be precursors to further tariffs.
Trump mentioned potential tariff rates on imported semiconductors during a weekend announcement, signaling variability in the administration’s stance on trade and tariffs. This ongoing uncertainty is mirrored in stock market fluctuations; the S&P 500 had recently seen a brief respite from losses only to slip back following these developments. The index remains trading lower than its closing value from early April, prior to the announcement of the “reciprocal” tariffs.
Citi analysts remarked on the ongoing volatility, suggesting that unless clarity emerges regarding tariff policies, market participants may endure prolonged uncertainty. This sentiment is echoed in a report by the World Trade Organization (WTO), which downgraded global GDP growth projections due to the ramifications of Trump’s trade war, forecasting 2.2% growth for the year—0.6 percentage points lower than projections absent new tariffs.
In addition to the trade concerns, quarterly earnings from major Wall Street banks have provided insights into the economic environment. Despite some firms, such as Bank of America, reporting best-ever earnings due to market volatility, its executives have noted the pervasive uncertainty affecting corporate decision-making. Bank of America’s CEO, Brian Moynihan, alluded to potential shifts in the economy ahead, while Goldman Sachs’ CEO David Solomon warned of a markedly altered operating landscape.
As markets continued to grapple with this climate of uncertainty, the U.S. dollar index saw a decline, marking its most significant single-week drop since 2022. Terry Sandven from U.S. Bank Wealth Management noted that investors’ focus is firmly directed towards developments in Washington, signaling that tariff decisions will heavily influence market sentiments. The yield on the 10-year Treasury note also slipped, suggesting a flight to government bonds amid rising fears reflected in CNN’s Fear and Greed Index, which indicated a prevailing atmosphere of “extreme fear” in the markets since late March. As the day unfolded, it was evident that investors remain on edge, awaiting further updates in this rapidly evolving economic narrative.