U.S. stocks took a sharp tumble overnight, aligning with trends already seen in currency and bond markets, which have been signaling a slowdown for weeks. The Nasdaq experienced its biggest drop in two-and-a-half years, falling by 4%, while bond yields also plunged. This downturn has led markets to price in a near 50-50 chance that the Federal Reserve will cut rates in May.
Tesla’s stock, which had soared after the election, has now halved in value, and the U.S. dollar, which had been on the rise in anticipation of President Donald Trump’s policies, is now weakening due to his decision to impose tariffs on neighboring countries.
The so-called “Trump trade,” which had driven U.S. stocks higher in the early days of Trump’s presidency, is in full retreat. Moreover, the expected “Trump put”—the assumption that the president would intervene to prop up the stock market during downturns—has yet to materialize.
In response to these developments, Citi downgraded its U.S. asset allocation, reducing stocks from “overweight” to “neutral.” The firm warned that the U.S. economy’s outperformance may not be sustainable over the next few months.
Meanwhile, Asian markets made some attempts to stabilize, aided by the prospect that repatriation flows from U.S. assets may benefit regions outside the U.S. Stocks in Tokyo, Seoul, Hong Kong, and Sydney recovered somewhat from their early lows, though the overall mood remained cautious. U.S. equity futures also showed early losses but struggled to gain any significant traction, with markets trading close to flat.
Currency markets saw less activity. The Japanese yen, which has been rising for weeks, reached a five-month high, reflecting the broader market’s recalibration to the moves in dollar/yen rather than the other way around. The euro remained relatively unaffected by political developments in Germany, where the Green Party has promised to block proposed increases in military spending, with traders expecting a potential compromise.
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Japanese Yen Struggles Against USD Amid Tariff Concerns and Hawkish BoJ Expectations
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