Stocks sink with bond yields as Trump fuels recession fears

By Sinéad Carew and Nell Mackenzie

NEW YORK/LONDON (Reuters) -Stocks slumped globally on Monday, while U.S. bond yields dropped as investor worries about the potential economic slowdown were exacerbated after President Donald Trump did not rule out a recession resulting from his tariffs.

MSCI's global stock index fell more than 2% for its biggest one-day drop since August while Nasdaq led Wall Street losses, ending down 4% for its steepest percentage loss since Sept 2022.

Investors had started seeking safety as early as Sunday when Trump in a Fox News interview talked about a "period of transition" while declining to predict whether his tariffs on China, Canada and Mexico would result in a U.S. recession.

Market strategists pointed to the comments as a key reason for Monday's cautious mood among investors.

"The Trump administration seems a little more accepting of the idea that they're OK with the market falling, and they're potentially even OK with a recession in order to exact their broader goals," said Ross Mayfield, investment strategist at Baird in Louisville, Kentucky. 

"I think that's a big wake-up call for Wall Street. There had been a sense that President Trump kind of measured his success on stock market performance. There was even somewhat of a 'Trump put' so to speak. And I think we're seeing that's not the case, so the market is starting to reflect that reality." 

The S&P 500 fell 155.64 points, or 2.70%, to 5,614.56 for its lowest closing level since September and its biggest daily percentage decline since December.

The Nasdaq Composite fell 727.90 points, or 4.00%, to 17,468.32, for its lowest close since September also. The Dow Jones Industrial Average fell 890.01 points, or 2.08%, to 41,911.71, for its lowest close since November 4, the day before Trump's election as president.

MSCI's gauge of stocks across the globe fell 19.37 points, or 2.27%, to 832.73 after touching its lowest level since January 13.

Earlier, the pan-European STOXX 600 index had ended down 1.29%.

In fixed income, yields fell with U.S. government bonds in demand after the Trump interview cut into investor confidence.

“If the occupant in the White House is himself not terribly optimistic about short-term growth expectations, why should the market be optimistic about it?” said Will Compernolle, macro strategist at FHN Financial.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 10.4 basis points to 3.898%, from 4.002% late on Friday, on track for their largest daily drop since September.

The yield on benchmark U.S. 10-year notes fell 9.3 basis points to 4.225% while the 30-year bond yield fell 6.9 basis points to 4.548%.

In currencies, investors looked for safety. Against the Japanese yen, the dollar weakened 0.5% to 147.29.

However, the euro was down 0.06% at $1.0826 and Sterling weakened 0.45% to $1.2862.

Oil prices sank as tariff uncertainty kept investors on edge along with rising output from OPEC+ producers, although potential sanctions on Iranian oil exports limited losses.

U.S. crude settled down 1.51% or $1.01 at $66.03 a barrel while Brent settled at $69.28 per barrel, down $1.08 or 1.53%.

Gold prices fell as profit-taking countered support from safe-haven demand fueled by geopolitical uncertainty, with focus also on the U.S. inflation data later this week.

Spot gold fell 0.86% to $2,885.63 an ounce. U.S. gold futures fell 0.76% to $2,882.70 an ounce. Copper declined 1.25% to $9,493.00 a tonne.

In cryptocurrencies, bitcoin fell 4.88% to $79,028.58 after touching its lowest level since November.

(Reporting by Sinéad Carew, Karen Brettell, Lisa Pauline Mattackal, Nell Mackenzie and Kevin Buckland; Editing by Lisa Shumaker and Stephen Coates)