Global markets are waiting with bated breath for Trump’s reciprocal tariffs to be implemented from April 2. Wall Street traded cautiously on Wednesday as investors waited for clarity on President Trump’s tariffs. The S&P 500 and Nasdaq rose 0.4%, while the Dow gained 165 points (0.4%). Tesla is up 3% even after reporting a 13% yearly decline in vehicle deliveries in Q1 2025.

Dubbed ‘Liberation Day’ by Trump, reciprocal tariffs are expected to spark a global trade war. After the market closes on Wednesday, April 2, President Donald Trump will announce reciprocal tariffs on virtually all countries at 4 p.m. Eastern Time ( 1.30 am IST).

As investors awaited the imposition of President Donald Trump’s reciprocal tariffs, US stock futures remained stable on Wednesday. Treasury Secretary Scott Bessent promised Congress that the additional tariffs would serve as a ‘cap’, enabling nations to take steps to lower them.

Three factors are playing out

First and foremost, Wall Street is concerned about the implementation of President Donald Trump’s tariffs. There is still uncertainty over the tariff schedule, which nations will be affected, and the rates for certain items. Following events, a clear picture will become apparent, and the markets expect the Trump administration not to make any sudden changes to maintain certainty.

The other factor is the high valuations that the US stock market indices are currently trading at. The Shiller price-to-earnings (P/E) ratio of the S&P 500 closed at 35.58 on March 26. This ratio, also known as the cyclically adjusted P/E ratio (CAPE ratio), accounts for average inflation-adjusted earnings over the previous ten years. While this is down from a high of 38.89 during the current bull market cycle, it is more than double the 154-year average multiple of 17.22.

What it shows is there is a significant downside risk for stocks because of high valuations. The impact of tariffs on global economies will become clearer over time. Markets, by nature, are forward-looking and will react sharply to altering global trade dynamics.

Lastly, the latest economic data pointing to a consumer spending slowdown has reignited recession fears. Goldman Sachs reduced its 2025 GDP growth prediction from 2.0% to 1.5% and increased its U.S. recession likelihood from 20% to 35%. Additionally, Goldman anticipates that the Federal Reserve will lower interest rates three times this year, up from its earlier prediction of two, as a result of increased recession risks brought on by U.S. tariffs.

Markets and Tariffs

The US stock market saw severe selling pressure this year, sparking concerns about a worldwide economic downturn and an increase in inflation. Markets could have factored in the impact of Trump’s reciprocal tariff on the trade between countries. The S&P 500 and Nasdaq had their worst quarter ending March since 2022, with both indices having entered the correction territory once after falling 10% from their recent highs.

Since its record high on February 19, the S&P 500 has lost more than $4 trillion in market value. Between the closing bells on February 19 and March 26, the Dow Jones, S&P 500, and Nasdaq Composite fell by 4.9%, 7%, and 10.8%, respectively.

The next big and immediate concern for the market is if the latest stock market correction could lead to a full-fledged bear market, which occurs when one or more major indexes lose at least 20% of their value.

Overall, volatility will rule the roost as fresh news and developments get reported. Expect some sharp moves on either side before things settle down.

Nigel Green, CEO, deVere Group has this to say – Within 6 to 12 months, Trump will be forced to backtrack, not only because of economic pressures, but also due to political and strategic imperatives that make these tariffs unsustainable.

History teaches us that trade wars are easy to start but hard to win, and the early signs of strain are already visible across markets and boardrooms.

The administration may claim it can raise $100 billion from these new duties, but that figure is dwarfed by the economic drag they could unleash. Inflationary pressure will build, especially with US companies passing import costs on to consumers. We anticipate it won’t take long for the political pain of higher prices to outweigh any perceived geopolitical leverage.

Volatility is rising, business leaders are hesitating on capital spending, and international counterparts are beginning to craft long-term strategies that bypass US suppliers altogether. Markets crave clarity, businesses need stability, and consumers demand relief from the very price shocks these policies create. A backpedal is not only likely — it’s almost inevitable.