President Trump’s tariffs have spooked investors. Fears of an economic downturn are driving a stock market sell-off. This sell-off has wiped out $4 trillion from the S&P 500’s peak last month, when Wall Street was cheering much of Trump’s agenda.
A barrage of new Trump policies has increased uncertainty for businesses, consumers and investors. Notably, these policies include back-and-forth tariff moves against major trading partners like Canada, Mexico and China.
Ayako Yoshioka, senior investment strategist at Wealth Enhancement, said, “We’ve seen clearly a big sentiment shift. A lot of what has worked is not working now.”
The stock market selloff deepened on Monday. The benchmark S&P 500 fell 2.7%, its biggest daily drop of the year. The Nasdaq Composite slid 4%, its largest one-day decline since September 2022.
The S&P 500 closed down 8.6% from its February 19 record high on Monday. It has shed over $4 trillion in market value since then and is nearing a 10% decline, which would represent a correction for the index. The tech-heavy Nasdaq ended Thursday down more than 10% from its December high.
Trump declined to predict whether the U.S. could face a recession over the weekend. Investors worried about the impact of his trade policy.
Peter Orszag, CEO of Lazard, speaking at the CERAWeek conference in Houston, stated, “The amount of uncertainty that has been created by the tariff wars with regard to Canada, Mexico and Europe, is causing boards and C-suites to reconsider the pathway forward.”
Orszag continued, “People can understand ongoing tensions with China, but the Canada, Mexico, and Europe part is confusing. Unless that gets resolved over the next month or so, this could do real damage to the economic prospects of the US and M&A activity.”
Delta Air Lines slashed its first-quarter profit estimates by half on Monday. This sent its shares down 14% in aftermarket action. CEO Ed Bastian blamed heightened U.S. economic uncertainty.
Investors are also watching whether lawmakers can pass a funding bill. This bill would avert a partial federal government shutdown. A U.S. report on inflation looms on Wednesday.
Ross Mayfield, investment strategist at Baird, stated, “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. I think that’s a big wake up call for Wall Street.”
The bottom 50% of the U.S. population, ranked by wealth, owns about 1% of total corporate equities and mutual fund shares. The top 10% of the population by wealth owns 87%, according to Federal Reserve Bank of St. Louis data as of July 2024.
Megacap technology and tech-related stocks led the S&P 500 to back-to-back gains of over 20% in 2023 and 2024. Nvidia and Tesla have struggled so far in 2025, dragging major indexes.
The S&P 500’s technology sector dropped 4.3% on Monday. Apple and Nvidia both fell about 5%. Tesla tumbled 15%, shedding about $125 billion in value.
Other risk assets were also punished. Bitcoin dropped 5%.
Some defensive areas of the market held up better. The utilities sector logged a 1% daily gain. Safe-haven U.S. government debt saw more demand. Benchmark 10-year Treasury yields, which move inversely to prices, fell to about 4.22%.
MARKET JITTERS
The S&P 500 has given up all gains recorded since Trump’s November 5 election. It is down nearly 3% in that time. Hedge funds reduced exposure to stocks on Friday at the largest amount in more than two years, according to a Goldman Sachs note released on Monday.
Investors had expressed optimism that Trump’s expected pro-growth agenda would benefit stocks. This agenda included tax cuts and deregulation. Uncertainty over tariffs and other changes, including federal workforce cuts, has dampened sentiment.
Michael O’Rourke, chief market strategist at JonesTrading, said, “It was the overwhelming consensus that everything was going to be this great environment once President Trump came into office.”
O’Rourke continued, “Every time you have structural change you’re going to have uncertainty and you’re going to have friction. It’s understandable people are starting to be a little concerned and starting to take profits.”
Even with the recent selloff, stock market valuations remain significantly above historic averages. The S&P 500 as of Friday was at just above 21 times earnings estimates for the next year. The long-term average forward P/E is 15.8, according to LSEG Datastream.
Dan Coatsworth, investment analyst at AJ Bell, stated, “Many people have been worried about elevated valuations among U.S. equities for some time and looking for the catalyst for a market correction. A combination of concerns about a trade war, geopolitical tensions and an uncertain economic outlook could be that catalyst.”
Investors’ equity positioning has fallen in recent weeks. It dipped to slightly underweight for the first time since briefly hitting that level in August, Deutsche Bank analysts said in a note on Friday.
A further retreat to the bottom of the historic range for equities weighting could drag the S&P 500 to as low as 5,300, or down another 5.5% from current levels. This is according to Deutsche Bank analysts, who noted this level was seen during Trump’s U.S.-China trade war in 2018-2019.
The Cboe Volatility index reached its highest closing level since August on Monday. This is another sign of growing investor unease. Edward Al-Hussainy, senior interest rate and currency analyst at Columbia Threadneedle Investments, said, “The administration is still trying to figure out how to define a win politically, economically, and what is the right timeframe. And until they do that, it’s going to be like this every week.”
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