Friday was another in the series of dramatic losses in the equity markets as investors pushed financial conditions into negative terrain because of mounting concerns around the costs linked to an expanding trade war.

Given the ever-widening scope of U.S. tariffs, with the next round set to take effect on April 2, the risks to the economic outlook through the financial channel are elevated and rising.

We anticipate that the economies targeted by the tariffs will retaliate in-kind. investors, firm managers and policymakers should also anticipate that retaliation will most likely include the tradeable services sector and not just agriculture, goods and politically sensitive industries like transportation.

Read more of RSM’s insights on the economy and the middle market.

The S&P 500 equity index peaked on Feb. 19 and has since lost 9% of its value with losses in seven of the past nine weekly sessions. On Friday alone, roughly $1.25 trillion in equity valuations were wiped away.

Interestingly, the Russell 2000 index of small cap corporations—a proxy for the health of privately held small and medium-sized businesses—has lost the most ground among the major stock indices.

The RTY index has now lost 17% of its value since peaking on Nov. 25, suggesting a loss of confidence in economic growth that will result in a slower pace of hiring and outlays on capital expenditures that will show up in hard data in the near term.

It is not just the equity market showing excessive levels of risk. Volatility in the Treasury market remains above its long-term average and corporate yield spreads are widening, offering more evidence of the concern over the direction of the economy.

While not yet significantly different than neutral, our RSM US Financial Conditions Index fell below zero on the last Friday of March.

Our index is designed such that negative values indicate increased levels of risk being priced into financial assets. Higher risk implies a higher cost of credit, which will affect the willingness to borrow or to lend that will hamper economic growth.