The global stock market selloff worsened, dragging US equity futures to new lows as fears grow that tariffs and government spending cuts could harm growth in the world’s largest economy. Bond prices surged as investors sought safer assets.
Asian shares dropped to a five-week low on Tuesday, following a rough day for the Nasdaq 100, which experienced its worst performance since 2022. Australian stocks hit their lowest point in seven months, while the Nikkei-225 Index fell to its lowest level since September. Futures for major stock indices, including the S&P 500, Nasdaq 100, and European stocks, continued to decline in Asian trading, extending Monday’s losses as Wall Street became less optimistic. Yields on 2-year US Treasury bonds fell to their lowest level since October, and the US dollar weakened.
Growth Concerns Drive Market Sentiment Lower
Investor sentiment has shifted negative as concerns grow about the US economy stalling. The fear is fueled by President Donald Trump’s ongoing trade war and government spending cuts, alongside shifts in long-standing geopolitical relationships. This change in mood is a sharp contrast to the optimism that marked Trump’s early days in office, when stocks, Bitcoin, and the US dollar saw significant gains.
Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, noted, “The selloff felt like a liquidation of any overweight/crowded positions, combined with a buyers’ strike.” He added, “Why buy now when Trump is not concerned with the stock market, and Powell [Federal Reserve Chairman Jerome Powell] said he’s not in a rush to act?”
Shifts in Investment Strategy
Citigroup strategists downgraded US stocks to neutral from overweight, while raising their rating on Chinese stocks to overweight. They believe that US exceptionalism is temporarily on hold. Citi also noted that China remains attractive even after a significant rally in the country’s stock market.
In contrast, HSBC strategists raised their rating on European equities, excluding the UK, to overweight, expecting that fiscal stimulus in the eurozone could have a significant positive impact.
US Stock Market Drops Sharply
On Monday, the US stock market experienced significant losses. The S&P 500 fell by 2.7%, and the Nasdaq 100 dropped 3.8%. In the tech sector, Tesla Inc. saw a 15% decline, and Nvidia Corp. led a gauge of semiconductor stocks to its lowest point since April. Additionally, about 10 major companies delayed their US bond sales.
Chinese Investors Continue to Buy Hong Kong Stocks
Despite the global risk-off sentiment, mainland Chinese investors made a record purchase of Hong Kong stocks on Monday, continuing to increase their holdings in the tech-driven rally of 2023. This surge in investment is partially driven by the rise of DeepSeek, a Chinese startup whose artificial intelligence model has been hailed as a potential game-changer in the industry.
While the Hang Seng Index in Hong Kong has risen by 18% this year, other regional markets have not performed as well. MSCI’s Asia-Pacific index has only risen by about 1% since the start of the year.
Currency Movements Reflect Market Concerns
In currency markets, most Group-of-10 currencies strengthened against the US dollar on Tuesday. The Australian and New Zealand dollars were exceptions, falling in value. Traditional safe-haven currencies, such as the Swiss franc and Japanese yen, performed well.
Japan’s Economic Growth Slows
In Japan, the latest data showed that the economy grew at an annualized rate of 2.2% in the final quarter of the previous year. This was slower than the initial estimate of 2.8% growth, which could influence the Bank of Japan’s decision to maintain its current policy when it meets next week.
Commodities Face Pressure from Market Declines
In the commodities markets, oil prices fell for the second consecutive day. The decline mirrored the broader drop in equity markets and other risk assets, as fears about tariffs and other economic measures weighed on growth prospects. Meanwhile, gold prices remained stable amid the broader market uncertainty.
Related topics:
