Stocks Tumble on New Tariff Concerns as Global Bonds Selloff
(Bloomberg) — A risk-off mood gripped markets with US stocks falling the most since November as worries over a trade war between the European Union and a selloff in Japanese bonds sent US Treasury yields higher.
S&P 500 Index fell 1.2% at 11:43 a.m. in New York, erasing most of its year-to-date gains. Information technology, consumer discretionary and communication services were the biggest losers, while energy was the only sector trading in the green. The Nasdaq 100 slid 1.2%. Wall Street’s complacency was shaken as the CBOE Volatility Index, or VIX, jumped above 20 for the first time since November, before paring the climb. Gold rallied, Treasuries fell and the dollar retreated.
Volatility rattled financial markets after President Trump continued to insist the US should control the semi-autonomous island owned by Denmark, a staunch NATO ally. His threat to impose 10% tariffs on European nations that don’t acquiesce was met with outrage across Europe. Leaders there planned an emergency summit to discuss options, including tariffs on €93 billion ($109 billion) of US goods.
“The market reaction is appropriate given the rapidly rising uncertainty,” said Michael O’Rourke, chief market strategist at JonesTrading. “The thought of forcibly coercing an ally to yield sovereign territory will incur geopolitical damage that will take years to repair.”
Here are some stocks investors are watching amid trade war converns:
Shares of French luxury group LVMH Moet Hennessy Louis Vuitton extended a selloff after the US president signaled he could impose a 200% tariff on French wines and champagne.
CNH Industrial NV declined the most among makers of agricultural equipment. Deere & Co. and AGCO Corp. also dropped.
Auto stocks also followed the broader market lower. Ford Motor Company shares dropped 0.5%, General Motors Co and Stellantis NV declined by 3.0% and 1.2%, respectively.
Travel stocks are mostly lower. The S&P 1500 Hotels, Resorts, and Cruise Lines Index is down as much as 2.5%, to the lowest intraday since Dec. 11. A worst case scenario, where there is further political escalation, resulting in travel bans, and a boycott of the FIFA World Cup or 2027 Rugby World Cup boycott, would likely weigh on the earnings of nearly all, but Marriott International Inc. and Airbnb Inc. are among those “most at risk,” wrote Bernstein analyst Richard Clarke.
The S&P 500 Index wiped out most of this year’s gains with investors bracing for a busy stretch of potential catalysts, including the president’s speech at the World Economic Forum in Davos. Traders are also watching the US Supreme Court’s expected decision on the legality of key elements of Trump’s trade agenda, and a potential announcement of the next Federal Reserve chair, which could come as soon as next week, according to the Treasury Secretary Scott Bessent.
Bond markets also came under pressure. Longer-dated US Treasury yields climbed after turmoil in Japan’s debt market sent shockwaves across global rates. The yield on the 30-year Treasury rose to 4.90%, tracking a selloff that pushed Japan’s 40-year yield to a record high as investors balked at Prime Minister Sanae Takaichi’s campaign proposals to cut food taxes.
Safe-haven assets outperformed amid the volatility. Gold surged past $4,700 an ounce for the first time, while silver also notched a record. As the dollar weakened, the Swiss franc posted its biggest two-day advance since April.
Tuesday’s spike in the VIX could cause volatility control funds to start reducing long-equities positioning, according to Laurent Laskowski, director of equity derivatives at the research firm Strategas Securities. A move of around 1% in the S&P 500 would lead vol control funds to cut equities exposure by 2%, but a 2% move in the S&P 500 equates to a 10% cut in such fund’s long positions.
Cryptocurrencies also fell sharply as risk assets slipped and haven demand strengthened. Bitcoin declined by more than 2% for a second straight day to below $91,000.
The latest market turmoil will test elevated risk appetites. Before this weekend, investors were the most bullish in nearly five years, while demand for equity downside protection was at its lowest since 2018, according to Bank of America Corp.’s latest fund manager survey.
As earnings season picks up steam, expectations remain high. Analysts forecast fourth-quarter S&P 500 earnings growth of about 8%, according to Bloomberg Intelligence, with investors focused on themes including artificial intelligence spending, oil-market volatility and tariff risks. Of the 33 companies that have reported so far, 88% have beaten estimates.
In corporate news, Netflix Inc. agreed to an amended all-cash deal to acquire Warner Bros. Discovery Inc.’s studio and streaming assets as it competes with Paramount Skydance Corp. for one of Hollywood’s most storied entertainment franchises. Netflix is scheduled to report earnings after the close Tuesday with investors being concerned about Netflix’s slowing flow of subscribers and the sustainability of its growth.
3M Co. shares fell after the industrial company gave an outlook for this year’s adjusted earnings per share with a midpoint below what analysts expected. U.S. Bancorp reported profit and a forecast for revenue that beat analysts’ estimates. And ServiceNow Inc. shares edged higher as the software company and OpenAI signed a multi-year agreement that will allow customers to use OpenAI models and custom AI capabilities.
Elsewhere, US gas stocks are rising after natural gas futures gained the most on record as an Arctic blast is forecast for two-thirds of North America through next week.
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