Opening escapade! Trump's "big stick tariffs" scare off US stock retail investors. Record sales volume in the first hour of trading on Tuesday.

Returning to the White House to begin his second term as President of the United States, Donald Trump has kicked off a new round of global trade wars that has temporarily shattered the optimistic sentiment of American individual investors towards the US stock market. Just after the opening bell on Tuesday, a record-breaking sell-off wave was triggered by individual US stock market investors. Trump's trade war - the largest protectionist action since the 1930s, may temporarily hinder US economic growth. This is just one of the accumulating challenges faced by increasingly tense consumers, businesses, and investors. Investors in the US stock market will face factors that may drag down US business investment, including Tesla CEO Musk-led federal workforce reductions, government reforms, immigration restrictions, and high uncertainty in US domestic and foreign trade policies. Economists are increasingly in consensus that, considering all factors, the world's largest economy will face a slowdown in growth, and may even fall into the dreaded "stagflation" that the Federal Reserve is most unwilling to see. According to statistics from Emma Wu, a global quantitative and derivatives trading strategist at Wall Street giant JPMorgan Chase, so-called individual investors withdrew around $1.2 billion from the US stock market (including options and other derivatives) in the first hour of trading. This marks the largest capital outflow in that time period since JPMorgan Chase began recording data ten years ago. The scale of individual stock withdrawals reached $1.1 billion, and were widely distributed across various subsectors of the US stock market. This large-scale outflow of individual investor funds is yet another example of how uncertainty caused by Trump's policy changes disrupts the direction of financial markets. Emma Wu states that individual investors' bullish sentiment has been at a high level recently, even surpassing the level during the meme stock frenzy of 2021. This withdrawal of individual funds led to a sharp decline in the market, with the S&P 500 index plunging by 2% at one point, but later recovering most of the losses as some investors bet that Trump may eventually change his policy. Jim Worden, Chief Investment Officer at Wealth Consulting Group, said: "There may have been some profit-taking behavior, as investors with lower risk tolerance may remain on the sidelines until uncertainties related to tariffs and US economic growth are eliminated." Nevertheless, individual investors remain relatively optimistic about certain sectors, such as large-cap tech stocks, also known as the "Big Seven" stocks that make up 40% of the S&P 500 index weight. The withdrawal from the Big Seven stocks accounted for only about 20% of the total withdrawals on Tuesday. The Big Seven - Apple, Microsoft, Google, Tesla, Nvidia, Amazon, and Facebook's Meta Platforms, have been the driving forces behind the record highs of the S&P 500 and Nasdaq Composite indices since 2023. Individual investors adhere to "buy on dips," while institutions sell on rallies. It is worth noting that this year, individual and institutional investors have had completely opposite strategies for the US stock market. Throughout history, they have strictly followed the "buy on dips" investment strategy, but this year institutional investors have become particularly cautious about US stocks. So far this year, individual investors in the US stock market have typically bought during declines, betting on short-term or medium-term rebounds, while hedge funds and other institutional investors have done the opposite - selling heavily on rallies. Historically, this disconnect between the two has been seen as a negative indicator for the direction of the stock market, as large institutions are ultimately believed to have a greater market sentiment influence. In addition, traders at Goldman Sachs wrote in a report to clients at the end of February that individual investor flows have started to weaken, partly due to news of the escalating US-led global trade war and, more importantly, mounting concerns about the US economy falling into "stagflation." Scott Colyer, CEO of Advisors Asset Management, said: "The tariff trading pattern is relatively unfamiliar to most individual investors, especially those who entered the US stock market during the pandemic, I think this adds another layer of complexity to the anxiety of individual traders. These so-called 'shakeout' events are always helpful in squeezing out some speculative bubbles." It is worth noting that Trump's latest threats of tariffs on China, Canada, Mexico, and the rest of the world come at a vulnerable time for the US economy, with continued high inflation rates remaining a major concern for Americans. Many economists believe that higher import tariffs will further raise domestic price levels in the US, as businesses will try to continually pass on costs to consumers. The large and low-income groups in the US have significantly reduced their consumption expenditures, with the current US consumption only being supported by high net worth consumers, which is the core driver of US economic growth. Before the PCE data report that showed a cooling of consumer spending last Friday, pessimism about stagflation had already been rising in the market recently. In early February, the January CPI and PPI were released, both exceeding expectations, and long-term inflation expectations for American consumers have even reached the highest level in nearly 30 years. The latest inflation expectations for February from the University of Michigan show that consumers' 5-year and 10-year inflation expectations in the US ended at 3.5%, marking the largest month-on-month increase since May 2021 and reaching a new high since 1995. American consumers are increasingly worried that Trump's tariff hike will lead to price increases. The US composite PMI fell from 52.7 in January to 50.4, hitting a new low in the last 17 months. More pessimistic data indicates that, for the first time in over two years, the large service sector activity, which is crucial for the US economy, is shrinking, with the service sector PMI preliminary figure at 49.7, entering the contraction zone, significantly lower than January's 52.9, unexpectedly hitting a new low since January 2023. The latest data from the Institute for Supply Management (ISM) shows that the price index measuring the input prices paid by manufacturers soared to 62.4, the highest level since June 2022, indicating that commodity prices reached the highest level in 11 monthsAfter the largest increase since the beginning of the month, it may continue to rise.The latest US Consumer Confidence Index released by the American Council on Economic Counseling fell below 80 (usually indicating an economic recession), largely due to concerns that Trump's tariff policies will lead to a significant increase in prices. The latest data from the Council also shows that the Consumer Confidence Index for February has fallen for three consecutive months, decreasing by 7 points from January's 105.3 to 98.3, lower than the market's general expectation of 102.3. This is the lowest data since June 2024 and the largest monthly decline since August 2021. However, as demonstrated by the recent inversion of the US bond yield curve, such signals are far from being realized, but these are the core logic behind the recent significant increase in expectations for "stagflation" in the US economy. Gregory Daco, Chief Economist at EY-Parthenon, stated, "The scent of stagflation is in the air. Even though we have not reached that point yet." He pointed out, "Developments, especially those of the past week, show that consumer sentiment is weakening, spending is also softening, and concerns about inflation - at least inflation expectations - are on the rise." Stagflation is arguably the most headache-inducing economic challenge for the Federal Reserve. Under the backdrop of stagflation, the Fed's room for rate cuts will be severely constrained, potentially forcing the US economy into a deep recession. Beyond tariffs: multiple risks accumulating under "Trump-style pressure" Although few believe that there will be a full-scale contraction this year, measures to stimulate growth such as tax cuts are still being implemented. However, the specter of "Trump-style recession" and "Trump-style stagflation" has been raised. If tariffs escalate into a tit-for-tat global trade war, this risk will be further amplified - Trump has made it clear that more tariffs will follow his tariffs on Mexico, Canada, and China. Future targets include the European Union, as well as high-profit industries such as automobiles, pharmaceuticals, and semiconductors, and "equivalent" tariffs calculated by the Trump administration based on various barriers to US goods overseas. This wave of tariffs comes amid clear signals of slowing US growth and rising inflation. PCE statistics show that US consumer spending in January experienced the largest decline in nearly four years, and consumer confidence has weakened significantly. Manufacturing activity fell last month, while the raw material payment price index soared to its highest level since June 2022. Calculations based on the economic models used by the Fed during Trump's first term show that the latest tariff impact could reduce US GDP by 1.3% and increase core inflation by around 0.8%, strengthening expectations of "stagflation". Economists at the Yale Budget Lab predict that the economic growth impact by 2025 will be about half of the above figures, but they warn of possible lasting trauma for many years. They write that even after production shifts and supply chain restructuring, Trump's latest tariffs and retaliation from other countries will reduce long-term GDP by 0.4% - "equivalent to a permanent shrinkage of $80 billion to $110 billion in the US economy every year". The layoffs led by the Department of Government Efficiency (DOGE) under Musk's leadership have led to over 100,000 federal employees losing their jobs, affecting a large number of government contractors. While DOGE alone may not trigger a recession, Claudia Sahm, creator of the Sahm Rule, a famous economist, points out that it "amplifies recession risks in two key ways by taking quick action and breaking conventions": first, concentrating economic impacts entirely in the short term, and second, creating uncertainty that may suppress job growth. She emphasizes that all these factors are against a backdrop of slowing growth, high interest rates, and the snowball effect of tariffs. Trump acknowledges that Americans may feel "some pain" from the tariff battle but believes that the long-term benefits of his agenda will be huge. The Trump administration believes that tariffs, deregulation, and tax cuts currently being pushed through Congress will together boost investment prosperity. To prove the effectiveness of his hawkish tariff policy, the Trump team mentioned that TSMC (the world's largest semiconductor manufacturing company) recently pledged to invest an additional $100 billion in building factories in the US. Another key aspect of the policy mix is cheap energy. There are indications that Trump has persuaded Saudi Arabia and Russia to increase production - this could lower oil prices, providing relief for US consumers affected by tariffs. The US economy has repeatedly proven its resilience and defied recession predictions. However, Stephanie Roth, Chief Economist at Wolfe Research, believes that the so-called "Trump-style pressure" is accumulating, constantly impacting the US economy. She states, "If you want something truly adverse for the economy, this is what you need."