But that jobs data was backward looking, and the fear hitting financial markets is about what’s to come.
“The world has changed, and the economic conditions have changed,” said Rick Rieder, chief investment officer of global fixed income at BlackRock.
The central question looking ahead is: will the trade war cause a global recession? If it does, stock prices may need to come down even more than they have already. The S&P 500 is down 17.4 per cent from its record set in February.
Trump seemed unfazed. From Mar-a-Lago, his private club in Florida, he headed to his golf course a few miles away after writing on social media that “THIS IS A GREAT TIME TO GET RICH”.
The Federal Reserve could cushion the blow of tariffs on the economy by cutting interest rates, which can encourage companies and households to borrow and spend. But the Fed may have less freedom to move than it would like.
Federal Reserve Chairman Jerome Powell has warned on inflation expectations.Credit: AP
Fed chair Jerome Powell said on Friday that tariffs could drive up expectations for inflation. That could prove more damaging than high inflation itself, because it can drive a vicious cycle of behaviour that only worsens inflation. US households have already said they’re bracing for sharp increases to their bills.
“Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell said.
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That could indicate a hesitance to cut rates because lower rates can give inflation more fuel.
Much will depend on how long Trump’s tariffs stick and what kind of retaliations other countries deliver. Some of Wall Street is holding onto hope that Trump will lower the tariffs after prying “wins” from other countries following negotiations.
Trump has given mixed signals on that. On Friday, he said Vietnam “wants to cut their Tariffs down to ZERO if they are able to make an agreement with the U.S.” Trump also criticised China’s retaliation, saying on his Truth Social platform that “CHINA PLAYED IT WRONG, THEY PANICKED – THE ONE THING THEY CANNOT AFFORD TO DO!”
Trump has said Americans may feel “some pain” because of tariffs, but he has also said the long-term goals, including getting more manufacturing jobs back to the United States, are worth it. On Thursday, he likened the situation to a medical operation, where the US economy is the patient.
“For investors looking at their portfolios, it could have felt like an operation performed without anesthesia,” said Brian Jacobsen, chief economist at Annex Wealth Management.
But Jacobsen also said the next surprise for investors could be how quickly tariffs get negotiated down. “The speed of recovery will depend on how, and how quickly, officials negotiate,” he said.
On Wall Street, stocks of companies that do lots of business in China fell to some of the sharpest losses.
DuPont dropped 12.7 per cent after China said its regulators are launching an antitrust investigation into DuPont China group, a subsidiary of the chemical giant. It’s one of several measures targeting American companies and in retaliation for the US tariffs.
GE Healthcare got 12 per cent of its revenue last year from the China region, and it fell 16 per cent.
All told, the S&P 500 fell 322.44 points to 5074.08. The Dow Jones Industrial Average dropped 2231.07 to 38,314.86, and the Nasdaq composite fell 962.82 to 15,587.79.
In stock markets abroad, Germany’s DAX lost 5 per cent, France’s CAC 40 dropped 4.3 per cent and Japan’s Nikkei 225 fell 2.8 per cent.
In the bond market, Treasury yields fell, but they pared their drops following Powell’s cautious statements about inflation. The yield on the 10-year Treasury fell to 4.01% per cent from 4.06 per cent late Thursday and from roughly 4.8 per cent early this year. It had gone below 3.9 per cent in the morning.
AP
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