The S&P 500 fell 1.8 percent on Monday following President Trump’s announcement to impose a 25 percent tariff on imports from Canada and Mexico, effective Tuesday, intensifying concerns over corporate profits and inflation.
Stocks plunged during the afternoon session as investors reacted to Trump’s reaffirmation of tariffs on the United States’ largest trading partners. The S&P 500 experienced its most significant decline of the year, while the technology-focused Nasdaq dropped 2.6 percent, nearing a correction as it now sits over 9 percent below its mid-December peak.
S&P 500 drops 1.8% after Trump announces new tariffs
Trump’s announcement included an additional 10 percent tariff on Chinese goods, which follows a prior 10 percent tariff implemented last month. Market fears surrounding these tariffs raised concerns over elevated prices in the U.S., potentially pushing the Federal Reserve to maintain higher interest rates longer, which could risk economic downturn.
The Russell 2000 index, which tracks smaller companies more affected by economic fluctuations, fell 3.1 percent, worsening its correction status, having declined over 14 percent since its peak in late November. The VIX volatility index, or “fear gauge,” surged to 24 points before stabilizing around 22, remaining above its long-term average.
Warren Buffett says Trump’s tariffs will hurt your wallet
In a White House press conference, Trump stated, “Tomorrow, tariffs — 25% on Canada and 25% on Mexico… They’re all set. They go into effect tomorrow.” He claimed a lack of room for further negotiations and mentioned the tariffs were intended to penalize countries that take from the U.S. economy without adequate returns.
Canadian Prime Minister Justin Trudeau responded, stating that Canada would impose tariffs on $30 billion worth of U.S. goods in retaliation if Trump follows through with his plans. Additionally, Trump signed an executive order increasing tariffs on imports from China to 20 percent, citing a lack of action by Beijing to curb fentanyl trafficking into the U.S.
The stock market sell-off followed a weaker-than-expected manufacturing index report for February, which indicated slowed growth in the sector. The Dow Jones Industrial Average dropped 650 points, or 1.48 percent, closing at 43,191. This marked a significant decrease, with the index previously down almost 900 points in afternoon trading.
Concerns about rising prices led to discussions among investors about the implications of Trump’s tariffs. “Due to the uncertainty surrounding the tariffs, the stock market has erased the gains from the ‘Trump bump’ following the presidential election,” said Gustavo Flores-Macias, a Cornell University professor.
As fears of market volatility persisted, the yield on the 10-year Treasury note slid to 4.16 percent, signaling concerns over future economic growth. Bitcoin also fell approximately 8.6 percent, trading around $85,600, largely reversing gains made after Trump’s recent announcement of a strategic cryptocurrency reserve.
In the wake of the tariff announcements, European defense companies saw their stocks rise sharply, reflecting increased concerns over U.S. support for Ukraine. Meanwhile, WTI crude, the U.S. oil benchmark, declined about 2 percent to its lowest level since December after OPEC+ announced plans to increase oil production in April.
Trump’s announcement is significant as it represents some of the largest import taxes in U.S.-China trade history, with ongoing tariffs affecting $1.4 trillion worth of imported goods. In response, a Chinese Ministry of Commerce spokesperson expressed that China was “strongly dissatisfied” and “firmly opposed” to the increased tariffs, vowing to take countermeasures.
The market’s response to these developments has been characterized by increasing volatility, prompting experts like Jason Draho from UBS Global Wealth Management to suggest that “U.S. stocks are likely to be volatile” until the administration announces more growth-focused policies.
Featured image credit: Kerem Gülen/Ideogram
