S&P 500, NASDAQ Plunge 3.5%, 4.1% on New Tariff Policy

The S&P 500 experienced a significant decline of 3.5%, while the NASDAQ plummeted by 4.1%. This sharp drop in the major indices reflects a broader market sentiment of uncertainty and concern. The Dow Jones Industrial Average also saw substantial losses, initially falling by 1,100 points before trimming its losses to a lesser extent. This volatility in the market is indicative of the broader economic and policy uncertainties that have been affecting investor confidence.

The market's reaction to the new tariff policy announced on April 2 was swift and severe. The implementation of a "comprehensive reciprocal tariff" policy, which imposes a minimum 10% base tariff on all goods exported to the U.S. and additional tariffs on countries with significant trade deficits, has sent shockwaves through the global trade order. This policy, which includes high tariff rates on key industries such as automobiles, steel, aluminum, and technology products, has raised concerns about supply chain disruptions and potential inflationary pressures.

The impact of these tariffs is not limited to the U.S. economy. The policy's broad scope and high tariff rates have exceeded previous estimates, leading to a significant sell-off in the stock market. The tech-heavy NASDAQ, in particular, has been hit hard, with the stocks of major technology giants experiencing significant declines. This sell-off is a reflection of the market's concern about the potential long-term effects of the tariff policy on economic growth and corporate earnings.

The Federal Reserve, which has been closely monitoring the economic situation, has expressed concerns about the uncertainty surrounding the tariff policy. The Fed's decision to keep interest rates unchanged at 5.5% in March reflects its cautious approach to monetary policy in the face of slowing economic growth and persistent inflation. However, traders have increased their bets that the Fed will start cutting interest rates in June, with a cumulative cut of three 25 basis points expected before October. This expectation of rate cuts is seen as a potential measure to mitigate the economic impact of the tariff policy.

The market's reaction to the tariff policy has also highlighted the importance of diversification in investment strategies. With the risk-reward ratio of unidirectional bets on U.S. stocks significantly deteriorating, investors are being advised to rely more on diversified strategies. This shift in investment strategy is a reflection of the market's recognition of the increased uncertainty and volatility in the current economic environment.

The impact of the tariff policy extends beyond the U.S. economy and the Fed's monetary policy. The policy's aim to increase fiscal revenue through tariffs and use it as leverage in negotiations with other countries has raised questions about the willingness of other countries to cooperate. The future global economy and financial markets will continue to face pressure under this uncertainty, as major economies around the world formulate countermeasures and adjust their economic policies in response to the tariff policy.