US stock market faces ‘waterfall decline’ risk as trade war escalates on Trump tariffs: Jefferies

What began as a relatively subdued market reaction to the latest round of US tariff hikes on ‘Liberation Day’ has turned into a sharp sell-off, rekindling fears of a prolonged global trade war. According to Jefferies strategist Christopher Wood in the firm’s latest Greed and Fear report, the “risk of a waterfall decline in the US stock market is rising” as trade tensions spiral and investor confidence falters.Liberation Day or Impoverishment Day?

Dubbed “Impoverishment Day” by Wood, April 2 initially saw only a modest decline across financial markets following the US tariff announcement. But that calm proved deceptive.
“The financial markets’ initial mild response should not deceive,” Wood warned, citing the historical example of the 1930 Smoot-Hawley Tariff Act, which deepened the Great Depression. “Tariff hikes are plain bad news… This is an impoverishment day, not a liberation day,” he wrote.US stock market opens sharply lower for 2nd day

Wood has been proved right as the US stocks opened sharply lower for a second straight day (after $2.5 trillion market wipeout the day before) as China hit back with retaliatory tariffs, intensifying fears of a prolonged trade war. The Dow Jones plunged over 1,000 points (2.2%), the S&P 500 dropped 2.3%, and the Nasdaq Composite slid 2.8%, following their worst session since 2020.

China retaliates with 34% tariff on US importsPanic has intensified after China announced a retaliatory tariff of 34% on all US imports, effective April 10—a tit-for-tat move for the US decision on April 2. Beijing also imposed curbs on rare earth exports and blacklisted multiple US firms under its “unreliable entities” framework, stoking fears that negotiation has given way to escalation.

Wood further criticised the lack of economic stewardship in a potential second Trump administration, suggesting the absence of a moderating figure like former Treasury Secretary Steven Mnuchin leaves Trump’s zero-sum view on trade unchecked. “There appears to be a vacuum in this administration,” the report states.

In addition to macroeconomic risks, Wood flagged structural market vulnerabilities, including stretched valuations and the potential for a “panic unwind” of passive investments.

Performance of Jefferies Asia-focused long-only thematic portfolios

Despite the US gloom, Jefferies’ Asia-focused long-only thematic portfolios—particularly in India and China—have shown robust performance since inception. The Asia ex-Japan portfolio is weighted 41% toward India and 32% toward China, while the global equity portfolio also leans heavily on these markets.

Notably, the India portfolio has outperformed overall, despite a recent quarterly dip, while the China portfolio underperformed due to its exposure to Alibaba.