Nasdaq enters bear market as U.S. tariffs spark global selloff and recession fears

U.S. stock markets recorded their worst weekly performance since the height of the COVID-19 pandemic in 2020, as a broad-based selloff driven by renewed trade tensions and rising recession risks rattled investors worldwide. The Nasdaq Composite tumbled 5.8% on Friday alone, officially entering a bear market after falling more than 20% from its recent December high. The S&P 500 also dropped 5.9%, sliding further into correction territory, while the Dow Jones Industrial Average shed over 2,200 points, or 5.5%. These sharp declines wiped out more than $2.5 trillion in market capitalization in just two days, capping one of the most volatile stretches in years for U.S. equities.

The immediate trigger was a sweeping announcement from U.S. President Donald Trump earlier in the week, declaring a new wave of tariffs targeting a broad set of trading partners. The move included fresh levies on imports from China, the European Union, Japan, Vietnam, Taiwan, and others, significantly widening the scope of the U.S. administration’s protectionist stance. China swiftly retaliated with 34% tariffs on U.S. goods, raising fears of a prolonged trade war and dragging down sentiment in global risk assets.

Investors responded by aggressively reducing exposure to equities and seeking safety in government debt. The 10-year U.S. Treasury yield fell to just above 4%, reflecting both a flight to safety and expectations of slowing growth. Meanwhile, the two-year Treasury yield dropped to 3.5%, suggesting that markets are now pricing in potential monetary policy adjustments.

How are recession fears impacting market sentiment?

The selloff coincided with a notable shift in the macroeconomic outlook. JPMorgan raised the probability of a U.S. recession in 2025 to 60%, citing rising trade tensions, potential inflationary pressures from tariffs, and slowing global demand. This marked one of the highest recession risk assessments from a major Wall Street bank since the early days of the COVID-19 downturn.

Recession fears are being further amplified by statements from Federal Reserve Chairman Jerome Powell, who on Friday warned that tariffs could feed into inflation over the coming quarters. Powell noted that while inflation has shown signs of cooling, the introduction of broad-based tariffs risks reigniting price pressures just as the Federal Reserve attempts to steer the economy toward a soft landing.

Historically, trade wars have proven disruptive for global supply chains, corporate margins, and consumer prices. The 2018–2019 U.S.–China trade war saw similar volatility in equities and significant business uncertainty, prompting corporate investment delays and reconfiguration of sourcing strategies. The current round of tariffs appears even more sweeping and could have broader implications, particularly if more countries follow China’s lead in imposing retaliatory measures.

Which sectors are being hit hardest by the tariff-induced market drop?

Technology stocks were among the biggest casualties of Friday’s rout. Market leaders such as Nvidia, Apple, Amazon, and Palantir saw substantial losses. Nvidia dropped 7.4%, Apple fell 7.3%, Amazon declined 4.1%, and Palantir plummeted 11.5%. These declines reflect both the sector’s high valuation sensitivity and its global exposure, with hardware, software, and AI firms all dependent on complex international supply chains.

Energy stocks also took a significant hit, dragged down by a combination of falling crude oil prices and heightened fears of demand destruction. The United States Oil Fund dropped nearly 6%, while major players including ExxonMobil, Chevron, and Schlumberger posted steep losses. Schlumberger led declines with an 11.3% drop, while ExxonMobil and Chevron fell by 7.2% and 8.3%, respectively. West Texas Intermediate (WTI) crude slipped below $62 per barrel, losing more than 10% for the week, amid growing concerns that global economic activity could slow sharply under the weight of tariffs and inflation.

Even traditional safe-haven assets were not spared. Gold prices retreated from a record high of $3,139.90 earlier in the week to settle at $3,012 an ounce. The SPDR Gold Shares Trust fell 2.3% on Friday. The decline in gold prices suggests some investors are liquidating profitable positions to cover losses elsewhere, while others question gold’s near-term performance if interest rates remain elevated.

How are policymakers and market experts reacting to the situation?

The Federal Reserve finds itself in a precarious position as it navigates competing pressures. On one hand, Powell has emphasized the risks that tariffs pose to inflation and economic growth. On the other hand, President Trump has publicly urged the Fed to cut interest rates, using his Truth Social platform to call for immediate policy easing. Trump claimed the current economic backdrop — marked by falling energy prices, lower inflation, and robust job creation — offers a perfect window for monetary accommodation. His comments echo his earlier critiques of Powell, suggesting the central bank’s policy response has often been delayed or insufficient.

Experts have weighed in with divided opinions. Some view the market decline as an inevitable correction following a long stretch of elevated valuations and investor optimism. Others believe the tariff shock may represent a temporary buying opportunity. Keith Fitz-Gerald of the Fitz-Gerald Group commented that savvy investors should “think like a shark” and consider acquiring top-quality companies like Apple and Tesla during market lows. While his view underscores the contrarian investment philosophy of buying during periods of fear, it also highlights the uncertainty around market timing.

Could tariffs push the U.S. into stagflation?

There is growing concern that the new tariff regime could lead the U.S. economy toward stagflation — a toxic combination of stagnating growth and rising prices. Unlike traditional inflationary periods driven by demand-side overheating, stagflation tends to result from supply-side constraints, such as trade barriers and commodity price shocks. The 1970s serve as a historical precedent, when energy embargoes and wage-price spirals devastated the U.S. economy and stock market.

Tariffs inherently act as a tax on imports, increasing costs for businesses and consumers. As companies pass those costs along, prices rise, potentially forcing the Federal Reserve to maintain higher interest rates even in the face of slowing growth. This dilemma reduces the effectiveness of traditional policy tools and can stretch monetary authorities to their limits.

What’s next for investors as volatility returns?

Investors now face a complex environment of heightened geopolitical tension, unpredictable policy shifts, and economic crosswinds. The market reaction this week signals a sharp reassessment of risk, particularly in sectors most exposed to global trade flows. While some analysts expect continued volatility, others argue that the rapid correction may provide opportunities for long-term investors.

History shows that bear markets — defined as a 20% decline from recent highs — do not always signal the beginning of prolonged downturns. However, the combination of geopolitical catalysts and uncertain monetary policy paths makes forecasting especially difficult in the current cycle. The path forward will likely depend on whether trade tensions escalate further or if diplomatic negotiations manage to de-escalate the situation.

The coming weeks will be crucial as investors await additional guidance from the Federal Reserve and clarity on the trajectory of global trade relations. Until then, markets may remain sensitive to every headline, reinforcing the importance of a diversified, risk-aware investment approach.