The past week saw significant volatility and divergence in global financial markets, driven by rising trade tensions, a hawkish turn in European fiscal policy, and growing fears of a U.S. recession.

U.S. equities continued their slide, with the S&P 500 and Nasdaq Composite falling another 4-5% for the week. The hardest hit were large cap tech stocks, with the so-called "Magnificent Seven" mega-cap names plunging over 6%. Tesla has tumbled 37% over the past 2 months, while Microsoft and Nvidia shed 16% each. The selloff reflects increasing concern that tit-for-tat tariffs between the U.S., China, Canada and other trading partners could tip the economy into a downturn.

In a Fox News interview, President Trump acknowledged "there is a period of transition because what we're doing is very big" but seemed undeterred by the market turbulence, focusing on "building a strong country" over watching stocks. An index of U.S. economic policy uncertainty has spiked to levels not seen for many decades, surpassing the 2008 financial crisis on that metric at least. Economists now see a 30% chance of a recession, up sharply in recent weeks.

In contrast, European markets proved resilient, buoyed by a historic shift toward fiscal stimulus. German 10-year Bund yields soared 50 basis points, the biggest surge since the early 1990s, after the new coalition government announced plans to dramatically boost defense and infrastructure spending, suspending normal debt limits.  European small caps and defence stocks were standout performers.

Emerging markets also advanced, led by China in hopes for more expansionary economic policies to be unveiled at the National People's Congress. Attitudes toward the US have soured in Europe, with the majority in key allies like Germany and the UK now viewing America as more of a threat than a partner. An unwinding of US leadership could accelerate a rotation away from U.S. assets.

Despite the turmoil, the longer-term picture is more encouraging. While the S&P 500 has surrendered its gains, it remains up 10% over the past year, with other global not far behind. Diversified portfolios are near breakeven year-to-date and up 7% for the last year. Rather than the start of a bear market, the recent pullback may be a healthy correction and broadening of market leadership after an extended period of U.S. and large cap tech dominance. Still, investors will be carefully gauging the impact of trade conflicts and the extent of any U.S. slowdown in coming months, especially if recessionary red flags accumulate.