The broadest index, the S&P 500, which includes 500 large corporations, fell almost 5%. The technology-heavy NASDAQ fell even more, dropping almost 6%. This was the biggest one-day drop since the COVID-19 hit the United States in 2020.

What set off the stock market sell-off was President Trump’s announcement of tariff increases the day before, which Trump named “Liberation Day.” Trump announced a minimum 10% tariff for almost all countries, and much higher tariffs for countries where the United States had large trade deficits. While Trump claimed that they were “reciprocal tariffs,” that is, based on other country’s tariffs, in fact they were calculated based on the U.S. trade deficit with each country.

These tariffs were piled on top of Trump’s previous tariffs. So, for example, China will now face the 20% tariffs from February plus 34% additional tariffs, for a total of 54% tariffs. This means that for every good that comes into the United State from China the importer will have to pay a fee equal to 54% of the price of the good. Trump’s 25% tariffs on imported cars also kicked in.

While Trump believes that the exporter pays the tariff, in most cases, the consumer will bear the brunt of the cost of the tariff through higher prices.

Even worse for the consumer, goods made in the United States that compete with imports will also go up in price. This is what happened during Trump’s first term, when he placed tariffs on iron and steel. While import prices went up 25%, domestic steel producers raised their prices on average 22%, preferring to make a quick buck than increasing production.

Trump also believes that higher priced imports will cause there to be more production in the United States. But his tariffs on iron and steel, and coming tariffs on imported car parts, increase the cost of production of goods using the tariffed goods. So, while there were small increases in production of iron and steel, leading to more jobs, the losses in industries using iron and aluminum for production were far greater, leading to an overall job loss.

This is even greater with Trump’s tariffs on imported automobiles. Over the last 30 years the auto industry has built plants across Canada, Mexico and the United States based on the no-tariff rules of NAFTA and now the USMCA [United States-Mexico-Canada Agreement] that Trump himself negotiated. But rather than moving plants to the United States, which would take billions of dollars and years of construction time, auto makers have started to shut down plants in Canada and Mexico on the belief that their cars cannot be sold with the 25% tariff. But parts for these plants are often made in the United States, so they can be shut down too. This is the case with Stellantis, which suspended production at plants in Canada and Mexico, leading to layoffs at their part plant here in the United States.

Another issue is that of retaliation and the costs to American workers and farmers. In Trump’s first term, he only tariffed about half of imports from China, but China’s retaliation by cutting off purchases of U.S. farm goods, especially soybeans, led the Trump administration to spend more than $20 billion on aid to farmers. This time, with Trump putting tariffs on virtually the whole world, the retaliation will be much greater and the cost in terms of lost business sales and workers’ jobs, will be much greater.

One of the impacts of Trump’s trade war is growing uncertainty among businesspeople, who are holding off hiring and investment decisions given the escalating trade war. For this reason, even mainstream economists are raising their estimates of the likelihood of a recession in the United States later this year. Factoring the damage to the economy caused by retaliation, the job cuts of federal workers, as well as terminating government contracts, it is more likely than not there will be a recession.

How bad could it get? Trump has threatened additional tariffs on semiconductors, pharmaceutical drugs, copper, timber and lumber, and more. He has also threatened more tariffs on countries that retaliate, countries that buy oil from Venezuela, countries that tax digital services by U.S. companies, etc. So rather than providing more certainty, “Liberation Day” marks the beginning of even more uncertainty.

With the Trump administration and their minions at DOGE going all out to cut spending, and with Republican majorities in both the House and Senate, it is very unlikely that there will be anything like the massive aid in 2008-2009 and 2020. Without federal spending, it is quite possible for the economy to continue to grind down, in a deep and painful recession.

#SanJoseCA #CA #CapitalismAndEconomy #Tariffs #StockMarket

Behind the drop in the stock markets was the growing realization of the economic costs of Trump’s trade wars and the growing possibility of a recession. The worry is that Trump’s tariffs will lift import prices, causing inflation to go up and production to go down because of higher costs. This so-called “supply-shock” would be a (hopefully) milder version of the COVID-19 pandemic impact in 2020.

On Monday, the Canadian province of Ontario imposed a 25% surcharge on the electricity it exports to the United States in response to Trump’s tariffs. About 1.5 million households and businesses in the states of Michigan, Minnesota and New York use Canadian electricity. The Premier of Ontario also said that they could shut off electricity exports altogether if Trump escalated his trade war on Canada.

The same day, China’s previously announced response to Trump’s tariffs also went into effect. It consisted of 15% tariffs on chicken, wheat and corn and 10% tariffs on soybeans, pork, beer and fruit. China also limited purchases of Chinese goods by 15 U.S. companies and banned ten from doing business in China. These agricultural tariffs are both an attempt to hit back at U.S. farmers, which is one of Trump’s bases of support, and reflect the progress China has made in applying technology including AI, global positioning (what we call GPS, but China has its own system by Baidu), and drones to agriculture.

Further, Trump’s 25% tariffs on aluminum and steel for all countries are scheduled to go into effect on Wednesday. The tariffs on aluminum will hit Canada the hardest, as they are the single largest country exporting aluminum to the United States. In fact, Canada’s exports are about the same as total U.S. production of aluminum. While steel imports are only less than a quarter of total U.S. steel consumption, Canada is still the largest exporter of steel to the United States, with Mexico as number two.

#SanJoseCA #CA #CapitalismAndEconomy #Trump #Tariffs #StockMarket

The S&P Purchasing Managers Index fell in February to 51.6, just above the 50.0 line where the economy is neither growing nor shrinking. The services part of the index actually dropped below 50, to 49.7, showing that the service sector was starting to slow. The “Trump Bump” of economic and financial enthusiasm has ended after just a month in office, as concern rose among businesses about the impact of his tariffs and deportations.

A separate report, on the sale of existing homes by the National Association of Realtors, saw sales fall by almost 5% in January, as compared to December of 2024. Interest rates have been rising. Trump’s proposed tariffs have led to greater expectations of higher inflation. Mortgage interest rates topped 7% in January, making home loans more expensive to pay off. While higher interest rates affect the demand for homes, as Trump’s deportation raids begin to reduce the number of construction workers, the supply of new homes will fall, pushing prices up even more and making them even less affordable.

The University of Michigan’s Consumer Sentiment Index fell almost 10%, to 64.7 in February, down from 71.7 in January. A big part of this was the rise in expected inflation over the next year, from 3.3% in January to 4.3% in February.

The largest outbreak of stagflation in the United States was in 1973 and 1974, when inflation and unemployment rose. Typically, these indicators move in opposite directions. The recession and rising inflation showed the post-World War II economic boom in the United States was over, and that the relative decline of the U.S. economy had begun. Today’s stagflation is a sign that the U.S. economic decline is accelerating. While Trump was largely elected because of widespread dissatisfaction with the economy, especially inflation, in fact, his policies were going to accelerate both the economy’s decline and rising prices.

#SanJoseCA #CA #CapitalismAndEconomy #Inflation #StockMarket

The stock price rout was led by Japan, where stock prices fell 12%, the worst day since “Black Monday” in October 1987, when U.S. stocks fell 22%, the worst one-day fall ever. A particular factor in Japan was that the Japanese central bank raised interest rates last week, causing a sharp jump in the value of the Japanese yen.

Back in the United States, the so-called “magnificent seven” of tech companies, including Alphabet (parent corporation of Google), Amazon, Apple, Meta (parent company of Facebook), Nvidia (maker of chip used in artificial intelligence applications) and Tesla have been leading the stock market higher for months.But on Monday, these stocks fell harder on average, as doubts about the profitability of AI joined with recession fears.

Falling stock prices are not a good predictor of a coming recession – in fact the biggest fall in October 1987 had little impact on the economy. But a sustained fall could affect spending by the wealthiest Americans, who own most stocks. As more and more working-class Americans have been cutting back on purchasing and turning to credit cards for necessities, wealthy Americans have kept up spending.

More worrisome is that many economic signs are pointing towards an economic slowdown that could lead into a recession. Claims for unemployment are on the rise. More and more credit card and car loan borrowers are falling behind on their payments. The manufacturing sector has been shrinking, albeit slowly.

#SanJoseCA #SP500 #S&P500 #Economy #Unemployment #Recession #Stocks #StockMarket #AI

Investors are facing up to the fact that the country’s central bank, the Federal Reserve, is more committed to slowing the economy to lower inflation than it is with propping up stock prices. Inflation has hit a 40-year high of more than 8% the last two months. The Fed has already raised short term interest rates twice, one time by half of a percent for the first time in 20 years.

The Fed has made public plans to begin to sell off its massive stash of bonds. During both the 2008 financial crisis and then the COVID recession in 2020, the Fed bought about $8 trillion in U.S. government and mortgage bonds, to lower short term interest rates to record lows and to reduce mortgage interest rates. The Fed plans to reduce its stash of bonds by almost $100 billion per month or more than $1 trillion per year. This will reduce the amount of money in circulation and in banks and will raise longer term interest rates. The standard 30-year fixed rate mortgage interest rate has gone from 3.11% at the beginning of the year, so 5.27%, a jump of more than 70%.

The Federal Reserve’s inflation fight is raising recession fears on Wall Street. Federal Reserve Chair Jerome Powell has been praising Paul Volker, who headed the Fed from 1979 to 1987. Under Volker, the Fed raised short-term interest rates, currently at 8/10ths of one percent, to a record high of 20% in 1981 to fight recession which had reached 13% just months before. While inflation did fall, the worst (at that time) recession since the Great Depression followed, with unemployment reaching 10.8%, even worse than the recession with the Great Financial Crisis in 2008.

Inflation has been eating at the purchasing power of workers’ wages. Even though hourly pay is up over 5%, with inflation over 8%, the purchasing power of workers’ wages has dropped by 3% over the last year. It is no wonder that there is growing dissatisfaction despite rising wages.

Supply side shortages have played a role in the rise of inflation. The COVID pandemic led to a severe drop in spending on services such as travel. People turned to goods, causing a spike in demand that U.S. factories, many still troubled by COVID, were unable to meet. The demand for imports rose, overwhelming ports and truckers. Then there were shortages of computer chips that restricted new car sales, which are off 20% from the current peak, while prices rise at double-digit levels. The lack of new cars increases the demand for used cars, while supply drops as people keep their cars when they can’t get new one.

The U.S. sanctions on Russia have pushed up oil and gasoline prices. The Biden administration has escalated the U.S. economic sanctions on China, causing shortages of solar panels. These shortages continue to crop up one after another helping to drive prices higher. Another supply side shortage is the drop in the number of new immigrants, which started under the Trump administration.

Demand has played a secondary role. When inflation started to take off a year ago, unemployment was still at 6%. While the massive government spending to prop up the economy played some role, it basically ended at the time inflation started to take off.

Inflation is rising in countries around the world, particularly in Europe, where sanctions on Russia have a greater impact. The U.S. and Europe’s economic war on Russia is pushing up grain and food oil prices, causing hardship in poor and middle-income countries dependent on trade with Russia for their basic foodstuffs.

One country much less affected by inflation is China. While China’s socialist economy no longer has extensive price controls like those in the Soviet Union, inflation has been much less than here, running around 1.5%. China was able to clamp down on COVID and limit deaths to about 15,000 as compared to the 3 million deaths there would have been if China had the same death rate at the United Sates. This meant fewer supply-chain disruptions and no need for the massive financial spending that the U.S. government needed to keep the economy alive. While producer prices are rising at almost the same rate as in the United States, the government can directly (through government-owned enterprises) and indirectly (through influence from state-owned banks and Communist Party committees in enterprises) keep businesses from passing on all the price increases. China also maintains a year or more supplies of raw materials such as metals and grains that can be released to curb production and food costs.

#SanJoséCA #economy #stockMarket

San José, CA – On Friday, April 22, U.S. stocks fell more than 2.5%, with the Dow Jones Industry Average, dropping almost 1000 points. This led to the third week of losses for U.S. stocks, as a combination of recession fears – based on slowing corporate sales and profits, combined with the reality of higher interest rates – influenced investors.

The biggest news this past week was a more than 30% drop in Netflix stock prices on Wednesday following their report of losing 200,000 subscribers, after a prediction of a large gain. But was not highlighted in the news was that Netflix lost 700,000 subscribers after pulling out of Russia as part of the U.S.-orchestrated economic war on Russia.

While the news details economic difficulties in Russia, little is said about the growing costs to the U.S. economy, including higher costs of gasoline. While Russia only provided about 2% of the U.S. oil supply, oil is very price inelastic, meaning that a small change in the quantity can cause a large change in prices. With the elasticity of demand for oil estimated as low as 0.05, a 2% drop in supply caused by U.S. sanctions on Russia could lead to a 40% rise in price. In fact, U.S. oil prices spiked 35% after the start of the war in Ukraine, leading to higher gasoline prices.

Netflix was one of the so-called “pandemic” stocks that rose in 2020 with the widespread stay-at-home orders. The stocks of other businesses such as exercise machine company Peloton, and online videoconferencing company Zoom have also been falling after huge price spikes in 2020. Other businesses whose stocks rose during the rapid expansion in 2021, such as online used car company Carvana and Domino’s Pizza, have also seen their stocks fall and their sales and profits slow.

But a broader range of stocks are being hit by slowing sales and profits. Verizon, the largest cell-phone service provider, was one stock hit by slowing sales and revenue showing an economic slowdown. Other companies, such a for-profit hospital chain HCA, are seeing their profits squeezed by higher cost as inflation spreads through the economy.

The 40-year high in consumer inflation that is now more than 8% is prompting the Federal Reserve to speed up their increases in interest rates. While the Fed only raised short-term interest rates by one-quarter of one percent at their last meeting, longer term interest rates are rising quickly, from 3.5% at the beginning of the year to over 5% now. This will start to slow the red hot housing market, and then new home construction, which is one of the major triggers for a recession.

A fundamental problem with the U.S. economy is that it is showing signs of a broad-based slowdown, or stagnation, which is typical of a monopoly capitalist economy. This slowdown is most clearly seen in the case of Japan, whose economy as grown at a less than 1% rate per year for the last 30 years. The same is true for the eurozone in Europe since the financial crisis almost 15 years ago.

On the other hand, the United States economy has grown much faster than Japan’s or Europe’s, at a 2.5% rate over the last 30 years. But the faster rate of U.S. growth has been held up by lower and lower interest rates. When interest rates are adjusted for inflation, or what economists call the real interest rates, U.S. interest rates have dropped from about 7.5%, to under 1% over the last 40 years.

The U.S. economy has also been supported by growing doses of federal government deficit spending. The total debt of the federal government, as compared to the size of the U.S. economy as measured by Gross Domestic Product, has risen from 30% 40 years ago to more than 120% today.

With both the Federal Reserve pledging to raise interest rates to slow the economy to try to bring down inflation, and the Biden administration now saying that deficit spending needs to fall, a slowdown in the economy is very likely. At the same time, with much of the inflation being caused by supply side-factors, increases in prices are going to continue. This combination of higher unemployment and high inflation, or stagflation, hasn’t been seen since the 1970s.

#SanJoseCA #PeoplesStruggles #stockMarket

To understand what has happened, it is important to start at the beginning for a short lesson in what stocks are. Stocks are slices of a business. Stocks like those of GameStock (a video game and electronics retailer) have been sold on a public market. There are many avenues to buy and sell stocks, and the one that’s most important to understand for this tale is Robinhood. Robinhood is a free app marketed toward regular people who don’t have the funds, the interest, or the time to invest through investment firms, hedge funds, and the like. Like its name implies, RobinHood would have us believe that its mission is to steal from the rich and give to the poor, but, as with all free services, if you’re not paying for a product, you are the product.

Robinhood’s business model includes making interest by lending out funds that users have in their accounts and, more insidiously, routing transactions through Citadel Securities. Citadel Securities makes money off of Robinhood transactions and kicks a portion back to Robinhood. Citadel’s agreement essentially means that Citadel is paying for two advantages.

First, Citadel Securities has the option to be the first entity on the opposite side of any Robinhood transaction. If you want to buy a stock, and it’s currently at a $1, when you hit the button to buy, in the milliseconds it takes to buy that stock, Citadel can buy that stock at $1 and sell it to you at $1.01. In fact, this is its whole reason for making the deal with Robinhood in the first place and is called “payment for order flow.” This means that no matter what you may be making off of stocks through Robinhood, Citadel is making money off of you.

Secondly, Citadel Securities has access to all of the Robinhood data; so, not only can they make money off of selling and buying to Robinhood traders, but they also have competitive advantage by getting Robinhood data first and trading off of it. When Reddit decided to buy GameStop, even if it had been planned completely privately, Citadel’s computers would have seen this sudden uptick in buys and traded based on that info before anyone else. Citadel Securities also makes money on selling information about what trades it has made to external buyers, essentially selling the Robinhood information to additional third parties.

There is another entity that’s important to understand before we put all the pieces together: Melvin Capital. Melvin was one of the primary targets of this Reddit/GameStop scheme because Melvin Capital bet the house on GameStop’s stocks going down. Simply, Melvin borrowed GameStop stock, sold that stock at X price, and promised their lender to give them back the same number of stocks at a future date. They are betting that the price at a later date, Y, will be lower than the price they sold them at earlier, X, meaning that they pocket the difference of Y-X. The issue is that if the price of GameStop stock is higher at the later date, then the profit disappears and actually turns into a debt. Melvin would be forced to buy GameStop stock at a price higher than they sold them at. Being forced to buy a stock at rising prices also has the effect of contributing to the further increase in its price, creating even higher prices. And that’s exactly what happened.

GameStop’s brick-and-mortar business model has been going out of fashion, and betting on it to fail seemed to be a pretty safe bet. Many people and organizations, not just Melvin, were shorting GameStop. Redditor day-traders (as opposed to professional traders) noticed this happening and decided to try and pull one over on the big firms by buying up GameStop stock and forcing the firms to lose their bets on the stock falling.

It’s important to note here that even with the price of GameStop stock skyrocketing, there was no change to its assets or business model. Even since this fiasco, there is no reason to suspect GameStop is substantially more valuable in any tangible sense than it was a week ago. Day-traders investing in GameStop on a lark and increasing the share price doesn’t change the fact that the share price will have to fall to reconcile with GameStop’s weakening business position. The point of this scheme is to keep the price artificially high just long enough to mess with those who were profiting off of GameStop’s demise.

Melvin Capital lost an undisclosed, but likely ten-figure, sum on GameStop. Redditors celebrated a victory over Wall Street, but their celebrations are premature. While they did accomplish a laudable act of uncovering the farce that is the stock market, Wall Street doesn’t lose easily. Robinhood froze trading on GameStop as well as other stocks mentioned on Reddit as potential targets for GameStop Scheme 2.0. Melvin Capital was bailed out with an almost $3 billion dollar cash infusion. Interestingly, $2 billion of that came from Citadel. Citadel is not the same organization as Citadel Securities, but they are both owned by the same person and, functionally, it’s not illogical to view what happened as one company that made money off of the GameStop scheme bailing out another company that lost money off the GameStop scheme – leaving those of us in the audience with the odd feeling that nothing has changed.

That’s the key – that’s what’s important. For all of the discourse about bankrupting Wall Street firms, what is being left out is the fact that these businesses are not like us. When we go bankrupt, we lose everything. When they go bankrupt, nothing changes except maybe the name on the building. Even then, the leaders of bankrupted Wall Street firms glide to safety with their golden parachutes, continue to be employed by the firms that buy out their failed endeavors, or simply use their remaining wealth (or that of their friends) to build a new firm. The same can’t be said for any Robinhood trader who got caught up in the moment and invested more than they should have and now is a bit short on rent. The industry remains consolidated, and the system marches forward in growth-for-growth’s sake until the next bubble bursts and we are left to pick up the pieces.

This moment is a lesson. Everyday people are who suffer when the financial industry leaders do wrong.

Capitalists would have you believe that the stock market ‘is’ our economy, that it’s too complicated for us to understand, but that we should trust it because it works for us. These past few days should show us, clearer than ever, that normal people can – and do – understand the stock market and that it doesn’t have our interests in mind.

Tech bros using financial instruments, even the ones with the best of intentions, will not be what brings Wall Street to its knees – at least not for very long. It will take an organized mass movement of real-life Robin Hoods who aim to take power, while taking down Wall Street and capitalism, forever.

#ChicagoIL #PeoplesStruggles #stockMarket #GameStop #Reddit