ADVERTISEMENTA massive wave of risk aversion extended across global markets on Monday, with US equities plunging into bear territory and European counterparts echoing the sell-off, as fresh tariffs imposed by President Donald Trump rattled investor confidence.
The S&P 500 futures index fell below the key 5,000-point threshold during mid-morning trading in Europe, marking a decline of more than 20% from its February 2025 peak.
This could mark the official entry of the the S&P 500 into bear market territory, aligning with the Nasdaq 100, which had already crossed that threshold last Friday following steep losses in technology shares.
Looking at the past three session the S&P 500 is projected to fall by 12.5%, evoking comparisons with some of the most dramatic downturns in modern history, including the October 2008 crash and the 1987 Black Monday.
“The collapse of US equities after President Donald Trump announced his new tariffs will be remembered in the history books, as it prompted the fourth-largest two-day drop in the S&P 500 since its inception in 1957,” BBVA market strategist, Alejandro Cuadrado, said in a note Monday.
“Markets have clearly entered a new phase of exacerbated volatility,” he added.
Tesla Inc. shares are down more than 5% in premarket trading, positioning the stock for a decline exceeding 50% from its peak in late 2024.
The so-called Magnificent Seven — comprising tech giants Apple Inc., Microsoft Corp., Amazon.com, Alphabet, Meta Platforms and Nvidia — have collectively shed over $2 trillion in market capitalisation in recent days.
On Friday, Apple, the world’s most valuable company, posted a 15% loss over three sessions — its steepest slide since October 2008.
Global markets slump as recession risks mount
Asian markets suffered historic losses, as Hong Kong’s Hang Seng index plummeted 13% overnight — its worst daily performance since the 1997 Asian financial crisis, while Japan’s Nikkei 225 shed over 8%.
European bourses followed suit in the morning session, with the Euro STOXX 50 down 4%, Germany’s DAX falling 3.5%, and losses accelerating in southern Europe: the FTSE MIB fell 4.8%, IBEX 35 dropped 4.3% and France’s CAC 40 slid 4.1%.
Investors are bracing for ripple effects on trade-dependent economies, corporate earnings, and global inflation dynamics. According to J.P. Morgan, there is now a 60% chance of a recession in the United States and globally, citing risks that the new tariffs could ignite inflationary pressures at home while also triggering a retaliatory cycle of protectionist policies.
Goldman Sachs chief economist Jan Hatzius has also revised his outlook, raising the bank’s 12-month U.S. recession probability from 35% to 45%. In a note on Monday, Hatzius cited tightening financial conditions, a surge in geopolitical uncertainty, and signs of declining corporate investment.
“Foreign consumer boycotts and the anticipated collapse in business confidence are likely to hit capital spending harder than previously assumed,” he said.
If all announced tariffs take effect, Goldman expects the effective U.S. tariff rate to rise by roughly 20 percentage points, even after factoring in possible exemptions or future negotiations. “If so, we expect to change our forecast to a recession,” Hatzius added.
ADVERTISEMENTEurope’s dilemma: Retaliate or restrain?
In Brussels, officials are walking a fine line, with policymakers facing pressure to respond.
“Trump’s tariffs are a declaration of trade war on a global scale. This may be a calculated negotiation tactic — start hard, then walk it back. But what works in corporate deal-making often fails in geopolitics,” said Guido Cozzi, Chair of Macroeconomics at the University of St. Gallen. “International relations depend on trust, credibility, and a shared commitment to rules — not shock therapy.”
Tomas Casas Klett, professor of international management at the same university, said the EU must avoid framing its response as a tit-for-tat trade war, and instead focus on de-escalation. “The policy goal in Brussels must be to avoid deepening economic pain and fuelling inflation among a European public already strained and susceptible to radicalisation,” he said.
ABN Amro’s head of macro research Bill Diviney said the bloc’s potential use of its recently introduced anti-coercion instrument (ACI), a legal tool allowing for targeted countermeasures against countries using economic coercion, remains ambiguous.
ADVERTISEMENTDiviney cautioned about knock-on effects for the European economy, particularly from a possible surge in dumped goods from Asian exporters.
Intesa Sanpaolo’s rates strategist Andrea Milani said monetary policy now hinges on whether central banks prioritise growth or inflation. “The direction of monetary policy in the coming months will depend on whether central banks are more concerned about the growth shock or the inflationary impact of tariffs,” Milani said. “Even though Fed Chair Powell has downplayed the tariff effects as ‘transitory’, that very word cost him dearly in the post-pandemic period.”