S&P 500 Drops 4% Amid Trump Tariffs, Market Calm
2min read On Monday, the S&P 500 index experienced a significant drop, while the U.S. dollar also declined and gold prices reached new highs. Despite these market movements, Wall Street remained unusually calm. Market veterans noted that the 4% intraday decline was met with an eerie tranquility, with minimal activity in both stock and options trading. This calm demeanor was particularly striking given the broader market context, where the S&P 500 has cumulatively declined by 9% since the implementation of Trump's tariff policies. The lack of trading volume and the subdued reaction from market participants highlighted an unusual level of complacency, suggesting that investors may be bracing for further volatility or awaiting clearer signals from the market. The subdued response to the market's decline underscored the complex dynamics at play, as investors navigated through a period of heightened uncertainty and geopolitical tensions.
Investment professionals and fund managers seemed relatively calm, though somewhat confused. Brad Conger, Chief Investment Officer at Hirtle Callaghan, noted, "Everything is now about the economy, but no one knows what will or could happen. People are very afraid to make any big moves, feeling like they are in a dark room with lots of sharp glass on the floor, and the best thing to do is stand still and hope the light comes back on." This sentiment reflects the cautious approach many investors are taking in the face of economic uncertainty and geopolitical risks.
President Trump's recent pressure on Federal Reserve Chairman Jerome Powell has reignited concerns about the president's interference in the central bank's policies. Trump's series of attacks since last week have raised questions about the Fed's ability to maintain its political independence, a cornerstone of confidence in U.S. financial markets. Meanwhile, the Fed's preferred inflation gauge remains above its target level, adding to the complexity of the economic landscape.
Trump's contradictory trade policies continue to weigh on the stock market. Since Trump announced significant tariff increases on most U.S. trading partners (which were later paused), the S&P 500 has cumulatively declined by 9%, marking a 16% drop from its February high. On Monday, all three major U.S. stock indices closed down more than 2%, with the S&P 500's 11 sectors all posting declines. The non-essential consumer goods and information technology sectors led the losses.
April 2025 is poised to become one of the most tumultuous periods on record, following the global financial crisis of 2008 and the global pandemic of 2020. Unlike those periods, however, this time Wall Street is shrouded in an unsettling calm, at least according to market sentiment indicators, despite the volatile price movements. The S&P 500 has averaged a 2% weekly swing this year, compared to a long-term average of two such swings per month. The Cboe Volatility Index (VIX) is currently hovering around 35, a level that typically indicates market distress. However, trading volume for April so far remains well below average, dropping from slightly over 200 billion shares to around 135 billion shares.
Elan Luger, Global Head of Risk Trading at JPMorgan's trading division, noted in a report on Monday afternoon, "Our trading desk is extremely quiet." Despite the S&P 500 experiencing its worst month since September 2022, there were few signs of panic. Retail investors, in particular, continued to buy stocks. Data from JPMorgan's global quantitative and derivatives strategist Emma Wu showed that as of Monday afternoon New York time, retail investors had net bought $22 billion worth of stocks, significantly higher than the average over the past month. Conger noted, "I haven't felt any panic. This is just a buyers' strike. The current forward P/E ratio for the S&P 500 is around 20 times, while a panic situation would likely see it drop to 16 times."
However, things could soon become painful. Earnings season is about to peak, the economic outlook is murky, and companies are struggling to navigate the uncertainty. Investors are focusing on the outlook and capital expenditure plans rather than profits. Dave Mazza, CEO of Roundhill Financial, stated, "There isn't much good news. Investors are no longer willing to take risks. The uncertainty surrounding trade policy, combined with Trump's attacks on Powell, is making an already fragile market difficult to bear."
