US stock index futures plunged overnight following President Trump’s tariff announcement after the market close yesterday. All the US majors ended Wednesday’s session in positive territory.

The S&P 500 and NASDAQ bounced off Monday’s lows which saw both indices hit levels last seen in back in September. Investors had been waiting for an opportunity to ‘buy the dip’, a proven money-making strategy since October 2022.

Some took a punt and bought in ahead of last night’s tariff announcement – a  decision that they will be regretting now. It appears that investors weren’t sufficiently prepared for the size and scope of the tariffs.

Source: TN Trader

It looks as if most were banking on a more ‘market friendly’ approach from the Trump administration, such as a 10% tariff across the board on US imports as the starting point for further negotiations.

It was therefore something of a disappointment when, in addition to this baseline, many countries will be hit with additional charges to take account of: “the combined rate of all their tariffs, non-monetary barriers and other forms of cheating,” according to President Trump.

In a sign of US largesse, these full reciprocal tariffs will be halved. But even then, the overall levies come in at eye-watering levels, including 34% for China, 20% for the EU, 46% for Vietnam, 49% for Cambodia (the highest on the list), 24% for Japan and 26% for India.

At the other end of the scale Australia, Brazil, Singapore, Turkey, Chile and Colombia join the UK with a tariff of just 10%. In China’s case, this tariff comes on top of the levies already applied.

It would be fair to say that investors have reacted badly to the news. In early trade the Dow, S&P, NASDAQ and Russell were down 2.5%, 3.0%, 3.3% and 4.4% respectively.

The question now is if these big moves in the futures markets will be followed through when the main exchanges open at 14:30 BST.

The Trump administration expects to raise significant revenue from tariffs. Estimates start at $600 billion with some guesstimates reaching $6 trillion. Tariffs are also expected to encourage the onshoring of manufacturing back to the US, a process which will take years and come at significant cost.

There are so many questions over this, including how the US’s trading partners will react. It sounds as if the UK will not retaliate, but the EU has threatened to respond in kind. As far as French President Macron is concerned, the world is already in a trade war.

Also, will tariffs prove to be inflationary as many are convinced, or will they depress economic activity to such an extent that a recession is triggered?

It was understood that last night’s announcement could lead to market volatility. But many traders also hoped that it would bring clarity and help to banish the uncertainty that has weighed so heavily on equities of late.

Unfortunately it hasn’t, which is why today’s sell-off is so deep. Can we bounce back from here? Of course. But it would take a tremendous leap of faith to buy stock indices in the absence of fresh information.

That said, if any of the US’s trading partners were to start serious negotiations, then that could bring relief to an embattled stock market.