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Investing.com - Equity and bond investors are flashing warnings signs that the Trump administration's tariff policies might be about to "blow up something" in capital markets, according to Yardeni Research.
U.S. stock futures tumbled on Wednesday after China's government announced that it is putting an additional 50% tariff on imports from the United States. The action matched a further levy imposed by President Donald Trump in response to an earlier retaliatory action by Beijing.
U.S. Treasuries extended a heavy sell-off on Wednesday as well, suggesting that traders may be moving away from even traditionally-perceived safe-haven assets during a broader tariff-driven slide in other assets.
"The Stock and Bond Vigilantes are signaling that the Trump administration may be playing with liquid nitro. Something may be about to blow up in the capital markets as a result of the stress created by the administration's trade war," the Yardeni Research analysts said.
A slew of Trump’s tariffs, including 104% levies on China, kicked in on Wednesday, further escalating global trade tensions and denting market sentiment.
Since Trump revealed his plans for across-the-board tariffs at a White House Rose Garden event last week, stocks have cratered, with the benchmark S&P 500 sliding close to bear market territory -- typically defined as a 20% decline from a recent peak.
On Tuesday, the index ended below 5,000 for the first time in nearly a year. It has now shed $5.83 trillion since Trump's April 2 tariff announcement -- logging the heaviest four days of losses since the S&P 500's creation in the 1950s.
Trump has broadly dismissed the market turmoil, arguing that it is necessary pain to overhaul what he views as unfair trade imbalances. Traders have also flagged uncertainty around the outlook for the tariffs after Trump said the moves could be both "permanent" and a tool to persuade foreign countries to sign favorable trade agreements.
Should the S&P fall into a bear market, the Yardeni Research analysts said the "Fed Put" -- the theoretical price level at which the Federal Reserve will take accomodative actions to support markets -- would "probably make a quick comeback."
"However, the financial markets might not recover unless the Trump administration moves quickly to negotiate trade deals," the analysts said.
Speaking at the White House on Tuesday, Trump said that "a lot of countries" are keen on making deals, adding that he anticipated China would look to make an agreement. Trump officials are due to speak with traditionally close U.S. trading partners South Korea and Japan, while Treasury Secretary Scott Bessent is set to meet with Vietnam's deputy prime minister on Wednesday.