The U.S. stock market is experiencing significant volatility as President Donald Trump’s recent tariff announcements fuel investor concerns. The S&P 500 closed down 0.8% on Tuesday, dipping closer to correction territory with a value of 5,572.07.
Trump’s tariffs hit stocks
The S&P 500 would enter correction territory if it slides to 5,529.74, marking a 10% drop from its recent peak. According to Andrew Slimmon, a senior portfolio manager at Morgan Stanley Investment Management, investors are reacting negatively to the tariff news, suggesting they are “listening to the very dark side of tariffs.” He expressed skepticism about the tariffs being as inflationary or damaging to the economy as many fear.
The closing prices for U.S. stock indices on Tuesday were as follows: the Dow Jones Industrial Average fell by approximately 475 points or 1.15%, and the tech-heavy Nasdaq decreased by 0.15%. This downdraft follows a significant decline on Monday, spurred by an increase in tariffs on Canada, Mexico, and China.
On Tuesday, Trump announced an additional 25% tariff on steel and aluminum imports from Canada, raising the total tariff to 50%. These tariffs are a response to Ontario’s own 25% tariff on electricity sent to the U.S., which took effect Wednesday.
Following Trump’s announcement, Ontario Premier Doug Ford and U.S. Commerce Secretary Howard Lutnick issued a joint statement suspending the surcharge on electricity imports and scheduled a meeting to discuss renewing the trade agreement between the U.S. and Canada. There was no indication as to whether Trump would delay or cancel the new tariffs.
The ongoing tariff disputes are seen as contributing to a broader trade war, heightened by China’s retaliatory tariffs on the U.S. The previous day, the Nasdaq recorded its worst performance since 2022, plummeting by 4%, while both the Dow and S&P 500 dropped more than 2% on Monday.
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Trump commented in a Fox News interview regarding potential recession implications from recent tariffs, saying uncertainty exists but did not anticipate a recession. Conversely, Slimmon noted that the market was entering a “fair value” range that might provide buying opportunities if fears of a growth slowdown do not materialize.
The Cboe Volatility Index (VIX) had increased about 55% this year, reaching nearly 27 on Tuesday. Slimmon characterized the recent selloff as providing “good” buying opportunities, emphasizing a focus on fundamental analysis amid negative market reactions.
Despite the selloff, the S&P 500 index is down 5.3% so far in 2025 after impressive gains of 23.3% and 24.2% in 2024 and 2023, respectively. Market analysts, including Tom Essaye, expressed that conditions may invite cautious investment in selected stocks, particularly those from major banks and some tech sectors.
Concerns regarding economic growth have led traders to price in a possibility of three interest rate cuts by the Federal Reserve by year-end. This follows a significant selloff as the S&P 500 has dropped 9.3% from its high in February and currently stands 3.6% lower since Trump’s election in November.
Market volatility has escalated as the S&P 500 closed below its 200-day moving average for the first time since late 2023, leading to concerns about future performance. Historical data suggest that when S&P 500 constituents above the 200-day level fall below 48%, it typically presages another average decline of 7.3% over the next year.
Investor sentiment has been further shaken by rising cash levels and a trend away from equities, with many cautious about elevated valuations. Despite these concerns, some analysts remain optimistic, suggesting gradual equity reallocation could present future opportunities.
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