Stocks on Friday slumped to their worst week since early April. Back then, the market fell because of President Trump’s sky-high tariffs. This time, the driver is the president’s deficit-increasing domestic policy bill.
The S&P 500 index fell 0.7 percent on Friday, adding to losses since Tuesday and taking its slide for the week to 2.6 percent. The drop on Friday came as Mr. Trump threatened even steeper tariffs on the European Union, and warned Apple that unless it manufacturers phones in the United States, it will also face new tariffs.
But it was the market’s concerns about the deficit that dominated the week and were likely to persist as the budget bill makes its way through the Senate. The bill, which cleared the House of Representatives on Wednesday, extends tax cuts, adds some new ones, and fails to significantly reduce spending.
The concern for investors is that if the government doesn’t rein in spending, it will have to borrow heavily to continue financing its operations. That worry has fueled a cycle of rising yields in the government bond market and falling stock prices.
“Markets remain hostage to policy out of the White House,” said Matt Eagan, a portfolio manager at Loomis Sayles. “While tariffs make headlines, it’s the deficit that matters most.”
Yields eased slightly on Friday but remained notably higher than where they began the month: notably, the yield on the 30-year Treasury bond this week rose above 5 percent for the first time since October 2023.
“No credible plan to reverse the trend is in sight,” said Mr. Eagan, who noted that the tax bill was forecast to add more than $3 trillion to the deficit over 10 years.
Investors also worry that tariffs could weigh on the Treasury market. If tariffs reduce imports, then that will mean fewer foreign businesses being paid with dollars. And those dollars are often reinvested back into the Treasury market.
On Friday morning, Mr. Trump said that he wanted iPhones sold in the United States to also be made in the country. “If that is not the case, a Tariff of at least 25% must be paid by Apple to the U.S.,” he said.
Apple’s stock fell 3 percent, a move that erased roughly $90 billion in market value from the tech giant.
In a separate post on social media, Mr. Trump wrote that trade negotiations with the European Union were “going nowhere” and called for a 50 percent tariff on all goods imported from the bloc starting June 1.
“The European Union, which was formed for the primary purpose of taking advantage of the United States on TRADE, has been very difficult to deal with,” Mr. Trump wrote on Truth Social.
Treasury Secretary Scott Bessent said on Fox News Friday morning that the president was frustrated with trade talks with the European Union and that he hoped the new threat would “light a fire under the E.U.”
Several analysts said they didn’t expect the 50 percent tariffs to be put in place for long, if at all, because they would also harm the U.S. economy. Instead, they argued that these threats would lead to an agreement, after a similar pattern of U.S. talks with other countries, such as China.
“Experience in recent months suggests that an agreement will ultimately be reached,” economists at Commerzbank wrote, adding that they expected the existing 10 percent “base line” tariff to remain on most products.
The United States imported goods worth more than $600 billion from the European Union last year.
“This latest pronouncement is likely just another step in the volatile trade negotiations,” Salomon Fiedler, an economist at Berenberg, said of Mr. Trump’s tariff comments. “Given the damage the U.S. would do to itself with this tariff, he will probably not follow through.”
Eshe Nelson is a Times reporter based in London, covering economics and business news.
Joe Rennison writes about financial markets, a beat that ranges from chronicling the vagaries of the stock market to explaining the often-inscrutable trading decisions of Wall Street insiders.
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