Nikkei and S&P 500 Dive After Trump’s Tariff Push—Is a Recession Next?

Donald Trump’s renewed push for protectionist trade policies has reignited fears across global markets. His call for “reciprocal” tariffs has triggered sharp reactions in multiple asset classes. While US labor data remains strong, equity markets—from the S&P 500 (SPX) to major international indices—are flashing bear market signals. Moreover, gold (XAU) and silver (XAG) are also undergoing corrections. This article analyses how Trump’s 2025 tariff policies impact global markets. It explores the sharp correction in the S&P 500, the steep decline in Japan’s Nikkei, and the broader reaction across international indices and commodities.

S&P 500 Drops as Economic Concerns Mount

The S&P 500 has dropped from its February high, trading at 5074. The sharp correction reflects growing concerns over trade-driven economic slowdowns and tightening financial conditions. Despite earlier resilience, investors are now pricing in weaker earnings and slowing GDP.

The decline in equity markets has been accompanied by a sharp drop in 10-year Treasury yields, breaking the key 4.0% support level. A break below this threshold indicates a further decline toward 3.6%.

However, the average hourly earnings increase at an annualized rate of 3.0%, as shown in the chart below. Therefore, persistent inflationary pressures may constrain further declines in yields, reinforcing the outlook that the bond market remains in a long-term bear phase.

Examining the Strong Volatility in S&P 500

The long-term view of the S&P 500 reveals significant price volatility, as illustrated in the monthly chart below. From 2015 to 2024, the index formed an ascending broadening wedge pattern, typically reflecting heightened market volatility. Currently, the index is trading near the upper boundary of this pattern, where it recently marked a high before entering a sharp correction.

However, the emergence of inverted head-and-shoulders patterns—from 2007 to 2012 and again in 2023—suggests that the broader trend remains bullish. Therefore, this correction may present a buying opportunity in a longer-term uptrend.

The bullish outlook is further supported by the weekly chart, which also shows a well-defined pattern of inverted heads and shoulders. The pattern’s neckline, located around 4,600, appears to be the first significant support level for this correction.

S&P 500 Drop and Trump’s Tariffs Hammer Japan’s Nikkei

The sharp drop in the S&P 500 has sent shockwaves through global markets, with Japan’s Nikkei 225 plunging in response. Investors reacted swiftly to the risk of escalating trade tensions, particularly after the newly imposed US tariffs targeted Japanese goods. With Japan’s economy heavily reliant on exports—especially to the US—the selloff reflects rising fears of reduced corporate earnings and supply chain disruption.

The 24% tariff on Japanese imports, set to take effect on April 9, will likely place significant pressure on Japan’s Nikkei 225. With the US moving forward with these measures, market sentiment in Japan has already been shaken, as reflected in the strong drop in the Nikkei on Monday. Following a fragile market environment, the tariff announcement has further eroded investor confidence in Japanese equities. The decline highlights growing concerns about Japan’s export-reliant economy and the potential hit to corporate earnings.

Japanese Prime Minister Shigeru Ishiba has already vowed to oppose the tariffs, indicating a plan to negotiate with President Trump directly. Ishiba’s efforts will likely involve broader discussions beyond tariffs, including the LNG and automotive sectors, which comprise a significant portion of Japanese exports. However, with tariffs already having an immediate impact, market participants will closely monitor any developments in these negotiations. If Japan fails to resolve the situation quickly, it could see prolonged uncertainty, which would keep the Nikkei under pressure.

The monthly chart for the Nikkei shows that the index has reached its long-term target of 42,000 and has begun to decline. This target was derived from an ascending broadening wedge pattern indicating strong volatility. Given the current fundamentals, including the impact of US tariffs and global uncertainty, the Nikkei may continue to trade lower toward the long-term support level of this pattern, located near 25,000.

Labour Market Defies Trade Uncertainty

Despite market volatility, the US labor market remains strong. In March, the economy added 228,000 jobs, and the unemployment rate remained at 4.2%, as seen in the chart below. Wage growth remains firm, with average hourly earnings up 3.0% annually.

This suggests the domestic economy has not yet absorbed the negative impact of Trump’s trade policies. However, early signs of slowing are visible. Meanwhile, a fall in heavy truck sales to 33,600 units signals weakening business confidence—often a leading indicator of recession.

Another recession indicator is the reversal of the Treasury yield curve above zero, as shown in the chart below. The curve is approaching levels that have historically ignited economic recessions.

Global Markets Signal a Bear Cycle

Trump’s tariff policy has unsettled international equity markets. Outside China, global stocks are declining sharply, with several major indices breaking long-term support levels.

Europe: The DJ Stoxx 600 fell below 500, and the FTSE 100 is breaking support at 8000.

India: The Nifty is already in a primary downtrend. A breakdown below 22,000 would confirm a bear market.

Australia: The ASX 200 failed to break resistance at 8050, confirming the start of a bear trend.

Interestingly, China’s CSI300 is fluctuating in wide ranges. Despite a staggering 54% tariff rate, the index remains above its 50-week weighted moving average. This indicates domestic policy support or delayed investor reaction.

On the other hand, gold and silver prices experienced notable declines following President Trump’s recent tariff announcements. Despite being exempted from the new tariffs, gold fell from its all-time high, with spot prices dropping below $3,000 per ounce on Monday. Similarly, silver prices declined sharply during the session. These movements suggest that, despite their traditional safe-haven status, precious metals were not immune to the broader market selloff triggered by escalating trade tensions.

Conclusion

Trump’s aggressive tariff measures have reignited global trade tensions. The S&P 500 and Japan’s Nikkei have dropped sharply, and other major indices have entered bear territory. US labour data remains strong, but warning signs are building. Bond yields are falling, truck sales are down, and global stocks are breaking support levels. These signals point to rising recession risks. Gold and silver have also declined despite their safe-haven status. Investors should prepare for continued market volatility and closely watch trade talks and economic data.