On Friday, April 4, U.S. stock markets suffered a dramatic sell-off, triggering fresh fears of an economic downturn. All three major indices — the Dow Jones Industrial Average (^DJI), S&P 500 (^GSPC), and Nasdaq Composite (^IXIC) — plummeted by more than 5% amid renewed trade tensions between the U.S. and China, and warnings from the Federal Reserve about inflation and sluggish growth.

The Dow shed more than 2,000 points, a decline of 5%, pushing the index firmly into correction territory. The S&P 500 saw its worst single-week drop since the COVID-19 crash of 2020, falling 5.6%. Tech stocks were hit particularly hard, with the Nasdaq Composite sliding 5.5%, approaching bear market territory — a 20% drop from recent highs.

Why is the stock market falling?

Several catalysts triggered the market’s steep downturn. The immediate spark: China’s announcement of sweeping new tariffs on U.S. goods. In direct retaliation for tariffs imposed by President Donald Trump earlier this week, China said it will enforce an additional 34% tax on all U.S. products starting April 10. The symmetry of the retaliatory move — matching Trump’s 34% rate — alarmed markets and sent a message that diplomatic resolution may be out of reach.

Investors now fear a prolonged global trade war that could stall growth, squeeze corporate profits, and drive up prices.

Federal Reserve Chair Jerome Powell’s comments did little to soothe markets. In a rare direct statement on the impact of tariffs, Powell said the measures were higher than anticipated and admitted that it’s too soon to say what path interest rates should follow moving forward. His remarks signaled uncertainty from the central bank at a time when markets crave clarity.

Are we heading into a recession?

The economic outlook is clouding quickly. Even though March’s jobs report showed that the U.S. added 228,000 jobs — exceeding expectations — the unemployment rate crept up to 4.2%. Many economists are raising red flags, warning that the combination of sticky inflation, aggressive tariffs, and slowing growth could tip the U.S. into a recession.

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What is Trump saying about the trade war?

President Trump took to his social media platform, Truth Social, to double down on his approach. He wrote that his policies “will never change,” and warned that China “played it wrong,” signaling an unwavering stance that could further escalate tensions.

His comments were seen as inflammatory by investors hoping for a de-escalation in rhetoric and strategy. Instead, they interpreted Trump’s message as a clear sign that the trade war is likely to intensify, sending markets into deeper turmoil.