Global financial markets are experiencing a historic downturn, with over $10 trillion wiped off major indices. This unprecedented selloff has been triggered by escalating concerns over the economic impact of U.S. President Donald Trump's aggressive tariff policies. The repercussions are being felt worldwide, with market movements reminiscent of the 2020 COVID-19 crisis.​

Wall Street Meltdown

The S&P 500 index has plummeted over 10% in the last two trading sessions, marking its worst performance since the end of World War II. This decline rivals significant downturns such as the 1987 stock market crash, the 2008 global financial crisis, and the 2020 COVID-19 shock. On Monday, the index exhibited extreme volatility, dropping as much as 4.8% before rebounding by 4%. As of 1700 GMT, it was down 1.33%. ​

Kevin Thozet, a member of the investment committee at Carmignac, anticipates continued declines in U.S. stocks and rising corporate borrowing costs. The significant losses in household wealth are expected to dampen consumer spending and hinder economic growth. U.S. households, heavily invested in equities, saw their combined wealth reach record highs at the end of 2024 following two years of impressive stock market gains. ​

Surge in Market Volatility

Wall Street's "fear gauge," the VIX index, has surged to its highest level since August's global stock selloff. Closing above 45 on Friday, it marked the most significant single-day jump since the 2020 COVID crisis. Similarly, Europe's Euro STOXX Volatility Index experienced its largest one-day surge in absolute terms since October 2008. ​

Banking Sector Under Pressure

Banking stocks worldwide have been severely impacted, with European and Japanese banks shedding approximately 20% over the past three trading sessions. In Europe, banking stocks had previously surged on optimism about Germany's fiscal boost but have now lost 15% in three days—their largest drop since the COVID crisis.

Fears of a recession are amplifying expectations for accelerated interest rate cuts from major central banks, a scenario that typically negatively affects banks. ​

Crude Oil Prices Decline

The anticipated weakening in global demand has also affected oil markets. Brent crude prices have fallen 2%, reaching their lowest point since April 2021. Over three sessions, oil prices have declined nearly 15%, marking the most significant three-day drop since the COVID crisis. ​

Impact on the Australian Dollar

The Australian dollar has been a notable casualty in the currency markets. Although Australian exports to the United States are subject to a lighter 10% tariff compared to China's 34%, the Aussie dollar is often used as a proxy for the Chinese yuan due to Australia's economic ties with China. Since the announcement of the tariffs and China's retaliatory measures, the Australian dollar has depreciated nearly 4%. Over the past two days alone, it has dropped 4.5%, marking its most significant two-day fall since 2020. ​

Vietnamese Markets React

Vietnam, a significant player in "Factory Asia" and a major exporter to the United States, is also feeling the strain. With the U.S. imposing a 46% duty on imports from Vietnam, the nation's trade surplus with the U.S., which had risen by 20% in 2024 to over $123 billion, is under threat. Consequently, Vietnamese stocks and the dong currency have declined, with the dong hitting an all-time low, approximately 5% below its seven-month peak in September. While a weaker currency could make Vietnam's exports more competitive, it may not be sufficient to offset the impact of substantial U.S. tariffs. ​

Stress in Frontier Markets

Sovereign bonds from several frontier markets are experiencing selling pressure. Pakistan, an exporter of textiles to the U.S., saw its bonds drop 13 cents before recovering slightly, pushing some debt below 70 cents on the dollar—a level indicative of distress. Sri Lanka's recently restructured bonds also faced steep losses, as did those of oil exporters like Angola. These developments raise concerns about borrowing costs and economic prospects for these nations, especially as Sri Lanka attempts to recover from its worst economic crisis in a generation, and Pakistan and Angola grapple with high debt burdens. ​

The current global market turmoil underscores the far-reaching implications of escalating trade tensions and protectionist policies. Investors and policymakers alike are closely monitoring these developments, hoping for stabilization and a return to economic growth.

Takeaway

The numbers don’t lie — from Wall Street to Tokyo, the cracks in the global financial system are widening. As these charts reveal, this isn’t just a correction; it’s a wake-up call. The question now isn’t if the world enters a deeper crisis, but how prepared are you when it does?