US Stocks Fall Ahead of Trump’s ‘Liberation Day’ As Markets Brace for Reciprocal Tariffs

US stocks cratered on Friday amid uncertainty over President Donald Trump’s trade policy and hotter-than-expected inflation. The President has already slapped tariffs of 25% on vehicle imports and has threatened to announce reciprocal tariffs on April 2 which he has labeled as the “Liberation Day” for the US economy.

The tech-heavy Nasdaq fell 2.6% last week and is on track for the worst monthly performance since December 2022. The S&P 500 Index and Dow Jones respectively fell 1.5% and 0.96% last week as markets brace for Trump’s reciprocal tariffs which are set to escalate the ongoing trade war.

The US trade deficit rose to a record high of $1.2 trillion last year. To make things worse, the world’s biggest economy is battling a burgeoning budget deficit that has surpassed $1 trillion in the first five months of the current fiscal year. Trump sees tariffs as a way to bridge both the deficit and expects to rake in $100 billion a year from the auto tariffs alone.

US Stocks Fall Ahead of Reciprocal Tariffs

To be sure, Trump has toned down his rhetoric on reciprocal tariffs and said “We’re going to make it very lenient.” He added, “I think people are going to be very surprised. It’ll be, in many cases, less than the tariff that they’ve been charging us for decades.”

Treasury Secretary Scott Bessent has separately said that the ‘Dirty 15’ or 15% of the countries that account for the bulk of the US trade deficit will be most impacted by the reciprocal tariffs. Going by his comments, countries like China, Indonesia, Mexico, Thailand, Canada, and India, as well as the EU would be most impacted by the reciprocal tariffs.

White House press secretary Karoline Leavitt separately told reporters, “He thinks that some of these numbers would be more conservative than many people are expecting.”

Meanwhile even as Trump and other administration officials have tried to calm nerves and signaled that the tariffs won’t be fully reciprocal, US stocks crashed last week.

US Stocks Under Pressure Amid Sticky Inflation

Data released last week showed that the core personal consumption index which is the Fed’s preferred inflation gauge rose 2.8% in February. The reading was ahead of the 2.7% that economists were expecting. US stocks came under pressure after the inflation data was released on Friday.

“The market is getting squeezed by both sides. There is uncertainty around next week’s reciprocal tariffs hitting the major exporting sectors like tech alongside concerns about a weakening consumer facing higher prices hitting areas like discretionary,” said Scott Helfstein, head of investment strategy at Global X.

Recession Odds Rise

Concerns over the US economy have been rising ever since February payroll data showed muted growth in employment. Bank of America’s chief investment strategist Michael Hartnett, incidentally, believes that April 4 would be a more crucial date to watch rather than April 2, as that day the Labor Department will release March payroll data.

Consensus estimates call for job growth to slow down to around 140,000 in the month. According to Hartnett, a number between 100,000 to 200,000 will imply a “soft landing” with “no recession.” He however cautioned that payroll numbers falling below 100,000 means a “hard landing” and would push the S&P 500 below 5,500 in April. Stocks tend to fall in a recession and rising worries over the health of the US economy have been putting pressure on markets over the last few weeks.

Surveys Show Riising Odds of Recession

Surveys have shown increasing odds of a US recession amid uncertainty over President Donald Trump’s tariffs. In the quarterly CNBC CFO Council Survey, the majority of chief financial officers said that they expect the US economy to enter a recession in the back half of 2025. Overall, 60% of CEOs in that survey said that they see a recession in the second half of 2025 while another 15% predict one next year.

The majority of respondents said that they were “somewhat pessimistic about the overall state of the U.S. economy.” However, CFOs don’t see a major slowdown on the horizon and 50% believe the recession would be “moderate” and another 40% see it as “mild.”

“I feel the current administration is seeing how far they can push before anything breaks. I am hopefully after the first 100 days that things will moderate,” said one CFO. Notably, 30% of respondents listed Trump’s trade policy as the primary reason for the new economic downturn base case.

US Stocks Could Crash in a Recession

Separately a Deutsche Bank survey shows a nearly 50-50 chance of a recession. UCLA Anderson Forecast has also recently issued its first-ever recession watch amid concerns over Trump’s policies. “This Watch also serves as a caution to the current administration: be mindful of what you wish for, as seeing all your policies through could make you the architect of a severe recession. And it may not be just a typical recession but one marked by stagflation,” said Clement Bohr, an economist at the firm.

US stocks fell in 2018 as Trump imposed tariffs on China and other countries. There are risks that Trump’s trade war could push up prices. While in his first tenure, Trump claimed that the tariffs are borne by exporting countries, economists disagree and say that they are borne by the US consumer.

In one of his recent interviews, Trump said that he cannot “guarantee” that his tariffs won’t hurt Americans. Even the legendary Warren Buffett took a swipe at the tariffs saying, “Over time, they are a tax on goods. I mean, the tooth fairy doesn’t pay ’em!”

Meanwhile, US stocks are already underperforming global peers this year. While the S&P 500 has shed 3% so far in 2025, country-specific ETFs have gained 8% on average this year according to data compiled by Oppenheimer.

US stocks outperformed global markets over the last decade and many believe that so-called US exceptionalism is set to end this year as global markets catch up while tariff and recession worries pull down US markets.