By Jamie McGeever
ORLANDO, Florida (Reuters) – TRADING DAY
Making sense of the forces driving global markets
By Jamie McGeever, Markets Columnist
Trade tensions, recession fears rise
U.S. President Donald Trump’s tariff ‘wrecking ball’ swung through financial markets again on Monday, sending investors scuttling for cover and wiping hundreds of billions of dollars more off the value of global stocks.
With Trump doubling down on his protectionist agenda and threatening further levies on China, the likelihood of U.S. and global recession is increasing by the day. Despite the scale of the market rout, however, recession still isn’t ‘in the price’. More on that below, but first a round-up of another extraordinary and volatile day on world markets.
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Today’s Key Market Moves
Trump’s tariff wrecking ball still swinging
When does a market slide become a slump, and when does that morph into a meltdown? And when does that crater into a crash?
There may not be any definitive demarcation lines, but if they do exist they have rarely been more blurred, as the stock market rout deepens on fears over the global economic damage being inflicted by Trump’s tariffs.
Hong Kong’s Hang Seng index plunged 13% for its worst day since 1997 and Japan’s Nikkei and the Nasdaq extended their bear market declines. Trading in several markets and stocks across Asia was suspended as losses triggered circuit breakers.
Wall Street held up better than most on Monday, but few observers would be confident it marks a turning point. The fog of tariff uncertainty is too thick to give investors, businesses and households any visibility much beyond the end of their noses.
That fog isn’t helped by the blizzard of headlines – from Trump himself, policymakers, officials and business leaders around the world – which is intensifying. Not only that, it is increasingly filled with confusion and contradiction.
Trump on Monday said tariffs are here to stay and he could increase them on China if Beijing doesn’t withdraw its retaliatory levies on U.S. imports. Tariffs could be permanent, and there could also be talks, he added.
Europe, meanwhile, proposed counter-tariffs of 25% on a range of U.S. goods including soybeans, nuts and sausages, though other potential items like bourbon whiskey were left off the list, according to a document seen by Reuters.
There could well be a number of bilateral negotiations opening up soon between Washington and major trading partners which could see deals eventually be reached. But volatility and uncertainty are unlikely to ease up much in the interim.
Among the myriad policymakers’ voices fighting to be heard right now, the most important one remains Trump’s. Fed Chair Jerome Powell spoke on Friday but was non-committal, and unless markets or the economic data take a severe turn for the worse, he may prefer to maintain a “wait and see” approach.
U.S. rates traders are now almost fully pricing in four rate cuts this year as growth forecasts get slashed and the oil price slump helps soften the inflationary push from tariffs. Brent crude is at its lowest in nearly four years and is down almost 30% from a year ago.
Wall Street isn’t even close to pricing in recession
If a proper bear market is unfolding on Wall Street, then it still has a long way to go, especially if the U.S. economy tips into recession.
While the S&P 500 on Monday narrowly avoided what would have been the worst three-day selloff since the Great Depression, that doesn’t mean we have reached a turning point. Stock valuations and earnings forecasts have fallen, but they still appear far too high when considering both previous market downturns and the immense economic turmoil being unleashed by U.S. President Donald Trump’s protectionist trade agenda.
A U.S. recession this year isn’t yet the consensus view – with only two big banks, JPMorgan and Barclays, officially calling one – but it almost certainly will be if Trump’s tariffs stay in place and the rest of the world retaliates.
The consensus U.S. earnings outlook certainly hasn’t adjusted for what JPMorgan equity analysts say would be the “waterfall event” of a U.S. recession. They have lowered their 2025 earnings per share forecast to $250 from $270, adding that the risks are still skewed to the downside.
That essentially implies zero earnings growth this year compared to the consensus view of around 10%. The latter is optimistic, to say the least, in a world where the U.S. is hurtling towards stagnation or contraction, China is struggling to head off deflation, and Europe and other major economies are likely already tipping into recession.
Meanwhile, the 2026 consensus earnings growth forecast for the S&P 500 is 14%. It’s difficult to see double-digit earnings growth this year and next when companies barely have any visibility about what will happen in the next few months.
THE $9 TRILLION SLUMP
The same applies to valuations. With the broader index flirting with bear market territory, it’s worth considering how today’s valuations stack up against those seen in recent decades when the market fell by 20% or more.
According to David Marlin of Marlin Capital, the S&P 500’s median decline over 10 major downturns going back to the early 1980s is 22.7%, and the median trough in the forward price-to-earnings ratio is 13.0. The lowest of those P/E ratios was 8.0 during the stagflation period in 1982 and the highest was 16.0 in 1998.
The equivalent ratio today, with the index down around 17% from its peak, is still over 20.0. Not only is that above the historical median highlighted by Marlin, but also the general average over the past 30 years of around 17.0.
It’s worth remembering just how much prices, valuations and earnings forecasts exploded in the last two years on the back of the ‘Magnificent 7’-led boom. Logically, the higher you rise, the more downside there is when the turn comes, right?
Big Tech certainly is correcting. Nvidia’s forward 12-month PE ratio is down to a six-year low of 20.0, and the broad S&P 500 tech sector’s 12-month forward PE ratio has declined to 25.0, its lowest since November 2023. They were around 35.0 and 30.0, respectively, earlier this year.
But are these corrections enough to reflect the rising likelihood of recession? The answer is clearly “no”, especially when considering that more than half of this year’s total earnings growth is expected to come from tariff-sensitive sectors like tech and communications, as JPMorgan analysts point out.
Market panic wiped $5 trillion off the value of U.S. stocks in just two days last week and some $9 trillion since the market peak in February, much of that in Big Tech. So it is sobering to think that – if recession hits – there is likely far more damage to come.
What could move markets tomorrow?
If you have more time to read today, here are a few articles I recommend to help you make sense of what happened in markets today.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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(By Jamie McGeever, editing by Nia Williams)
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