Wall Street stocks posted their worst quarter in almost three years on fears that Donald Trump’s tariffs will usher in a period of stagflation in the world’s biggest economy.
The S&P 500 dropped 4.6 per cent in the first three months of 2025, the worst performance since the third quarter of 2022, according to FactSet data.
However, European shares rose on Tuesday following a pullback in the previous session, although the mood remained cautious ahead of the impending US reciprocal tariffs set to take effect.
The pan-European STOXX 600 index was up 1 per cent this morning after closing the books on a strong quarter as Germany’s historic fiscal package and the prospects of slowing US economic growth attracted investors to the region.
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The White House is due to announce on Wednesday a new round of reciprocal levies, although details have been scarce.
Fears that an escalating trade war would cause a global economic slowdown prompted a flight from risky assets on Monday, pushing STOXX 600 to its lowest point in more than two months.
Goldman Sachs on Tuesday cut its 12-month forecast for the European benchmark index to 570 points from 580 earlier due to US tariff impact.
Investors will also assess the euro zone’s inflation numbers on Tuesday, a day after data showed that German inflation fell more than expected in March, bolstering the case for the European Central Bank (ECB) to further cut interest rates.
Comments from ECB President Christine Lagarde and board member Philip Lane are also awaited.
All major European sectors advanced, with healthcare and banks leading the charge.
The sharp US pullback in the first quarter comes as Wall Street banks and investors fret that Trump’s levies on trading partners will slow economic growth while also increasing prices. Sentiment among consumers and businesses has also cooled sharply, several recent surveys have shown.
Investors are bracing themselves for Mr Trump’s “liberation day” event on Wednesday, when the US president is expected to announce fresh tariffs, on top of existing levies on imports of goods such as steel and aluminium.
“I don’t think any of us expected the kind of continued headline noise, the lack of clarity on how the administration will go about achieving its goals,” said Jesse Mark, global head of equity capital markets at US bank Jefferies. “It feels very much self-inflicted.”
Sharon Bell, senior equities strategist at Goldman Sachs, said: “I don’t necessarily see the floor quite yet [in stock prices].”
Goldman Sachs at the weekend lifted its year-end forecast for an inflation rate closely watched by policymakers and warned it now saw a 35 per cent chance of US recession over the next year from 20 per cent previously.
Big Tech stocks, which have dominated markets in recent years, pulled back sharply in the first quarter, with the Nasdaq Composite sliding 10.4 per cent. The shares were hit by rising worries over the economy and concerns that a boom in spending on artificial intelligence infrastructure could be overdone.
Consumer-facing companies and other economically sensitive stocks also pulled back sharply. Nike sold off 16 per cent after the group said the trade war and consumer caution were complicating its efforts to boost sales as part of a turnaround.
FedEx declined 13 per cent after slashing its 2025 profit forecast and warning of “continued weakness and uncertainty in the US industrial economy”. - Copyright The Financial Times Limited 2025/Additional reporting Reuters
