By Gregory Zuckerman, Krystal Hur and Gunjan Banerji
Rob Citrone couldn't believe what he was seeing.
The 60-year-old hedge-fund manager watched from his Orlando, Fla., home as President Trump walked into the White House's Rose Garden and announced his sweeping plan to impose tariffs on the rest of the world.
Citrone knew more levies on imported goods were coming -- the White House had stuck to this message for months -- and so he'd placed a series of wagers against U.S., European and Chinese stocks, betting they would drop as investors fretted over the consequences for consumers and companies.
But for the first part of Trump's Wednesday speech, the market moved higher. This rally is crazy, Citrone thought, and added to his bets that stocks would fall.
Then the president unveiled a plan that went further and wider than most investors thought possible. Trump had just taken on the globe in a trade war. A market rout was on.
"I should have sold more," Citrone said.
Across Wall Street, money managers, brokers and bankers were reeling from what many described as an unprecedented shock, and fearing it marked an end to the market's post-Covid rally. They might have lived through much bigger market swings, but this one -- induced by a U.S. president bent on establishing a new paradigm for global trade, at the expense of rivals and allies alike -- felt incomparable because it was the result of deliberate policy.
By midday Thursday, major stock indexes were on track for their worst day in more than two years, and the U.S. dollar slipped to its lowest level of 2025, a sign of unease. Investors dashed for the safety of Treasurys, while gold -- normally another haven -- fell.
"We're in a macro world that I've never seen now," said Stephen Solaka, managing partner at Belmont Capital Group. "We've been used to sort of the, 'buy the dip, things kind of work out,' scenario."
Solaka said he's heard from a lot of clients and senses a level of anxiety they haven't felt in years, maybe ever. It is likely they grew accustomed to the market always roaring back from every selloff, he said. This time, they aren't interested in looking to add tech stocks on discount. "We've seen a lot of clients look to derisk," Solaka said.
Within around an hour on Wednesday evening, traders hiked the probability of a recession this year to 48%, up from 38%, according to Polymarket, a crypto-based prediction market.
Even before Trump's speech had ended, Wall Street's investors and intermediaries had swung into action. But they grasped for the right words to describe what might come next, or what to do with their money. Some of their notes and commentaries referenced the tariff policies of the 1930s, rarely a welcomed historical comparison for either the markets or the economy.
As the market slide continued, some grew concerned that selling would beget more selling. Automated trading strategies have emerged in recent years as a stronger force in the market. These programs, which depend on preset algorithms and models rather than intuition and instinct, tend to flicker to life just as the market turns more volatile, says Arnab Sen, who helped build some of these models while working for Barclays and Morgan Stanley.
As a result, they can amplify selloffs, he said. "Think of it as a delayed reaction," Sen says. "They are not the spark, but they will exacerbate the chaos if this shock persists."
The ratio of options contracts typically meant to protect against big market declines -- versus those meant to place bets that stocks will rise -- surged to their highest level since Aug. 5, according to Cboe Global Markets. That day, the Nikkei 225 fell more than 12%, its worst one-day drop since the crash after Black Monday in 1987, spooking investors around the world.
Thursday's market drop may have been, according to DRW Trading Group's Lou Brien, "as swift as I've even seen," but it will take time for investors to digest fully what Trump's tariffs mean. "It is a process, not an event," he said.
For weeks, investors hoped that the tariffs unveiled at the president's "Liberation Day" wouldn't be so bad. The president might back off. The threats might be a short-term negotiating tactic. Fewer countries than expected might be included.
Instead, the levies were even worse than what most anticipated. "It was pretty shocking," said Danny Kirsch, head of options at Piper Sandler. He said his team had one of the busiest nights he can remember, placing bearish trades for clients until 10 p.m. Wednesday. Interest in such trades picked up immediately after the Rose Garden ceremony.
"The bull argument keeps shrinking," Kirsch said.
During the pandemic, when the U.S. stock market suffered multiple "Black Monday" crashes, the U.S. government raced in with a flurry of actions to stimulate the economy, and within weeks stocks resumed their upward climb.
But this time, Washington has been the cause of the selloff, not the solution.
"Never before has an hour of presidential rhetoric cost so many people so much," Larry Summers, a former U.S. Treasury secretary, wrote Wednesday on the social-media platform X.
Wedbush Securities's Dan Ives had watched Trump's speech alone in his New York office. When Trump unveiled the tariffs, including a staggering additional 34% levy on China and 32% on Taiwan, he was hit with jarring flashbacks to March 2020.
"My initial reaction was, worse than worst case. This is going to be an all-time panic moment," said Ives. "I almost couldn't breathe."
For many in the investing world, Trump's constantly shifting tariff plans made it hard to believe he would follow through, and easier to rationalize them as more of a negotiating tactic than a new policy directive.
Callie Cox, chief market strategist at Ritholtz Wealth Management, says she spent six hours on a Sunday in early February writing research briefings about the potential effects of 25% levies on Mexico and Canada, only to find out that last-minute deals were struck with both countries to delay the tariffs.
"We've been the frog in boiling water here, getting used to the dramatic nature of these announcements," Cox said. "Today is a day where investors are just beaten into acceptance."
Write to Gregory Zuckerman at Gregory.Zuckerman@wsj.com, Krystal Hur at krystal.hur@wsj.com and Gunjan Banerji at gunjan.banerji@wsj.com
(END) Dow Jones Newswires
April 03, 2025 15:21 ET (19:21 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
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