The United States stock market has shed a staggering $4 trillion in value as investors react to President Donald Trump’s aggressive tariff policies, raising fears of an economic downturn.
The benchmark S&P 500 index plunged 2.7 per cent on Monday, marking its sharpest daily drop of the year, while the tech-heavy Nasdaq Composite slid 4 per cent—its biggest single-day decline since September 2022. The latest selloff has pushed the S&P 500 down by 8.6pc from its February 19 record high, bringing it close to a 10pc correction threshold.
Trump’s recent tariff measures against key trading partners, including Canada, Mexico, and China, have created a climate of uncertainty for businesses and investors alike.
The administration's shifting stance on trade policies has sparked concerns in corporate boardrooms, with experts warning of broader economic consequences if tensions persist.
“We’ve seen a clear sentiment shift,” said Ayako Yoshioka, senior investment strategist at Wealth Enhancement. “A lot of what has worked for the markets is no longer working.”
The financial turbulence has also taken a toll on major corporations, with Delta Air Lines slashing its first-quarter profit estimates by half, sending its shares tumbling 14pc in after-hours trading. Delta CEO Ed Bastian cited rising economic uncertainty as a key factor behind the revised projections.
Markets rattled by economic uncertainty
Analysts say the Trump administration’s willingness to endure a market decline in pursuit of its broader policy objectives has unsettled investors. “The administration seems more accepting of a market downturn, and possibly even a recession, to achieve its trade goals,” said Ross Mayfield, investment strategist at Baird.
Federal Reserve data underscores growing economic disparities, with the wealthiest 10pc of Americans owning 87pc of corporate equities and mutual fund shares, while the bottom 50pc holds just 1pc.
Tech stocks, which have driven market gains in recent years, faced significant losses on Monday. The S&P 500’s technology sector dropped 4.3pc, with Apple and Nvidia both losing around 5pc. Tesla saw an even steeper decline, tumbling 15pc and wiping out roughly $125 billion in market value.
Other risk assets also faced pressure, with Bitcoin sliding 5pc. Meanwhile, defensive sectors, such as utilities, saw gains, with investors flocking to safe-haven assets like U.S. government bonds. The yield on benchmark 10-year Treasury notes fell to around 4.22pc as demand surged.
Fears of a prolonged downturn
Uncertainty over U.S. economic policy has also led hedge funds to scale back their exposure to stocks, marking the biggest reduction in holdings in over two years, according to a Goldman Sachs note.
“Many investors had initially bet on Trump’s pro-growth agenda, but the trade wars and other unpredictable policy moves are now driving caution,” said Michael O’Rourke, chief market strategist at JonesTrading.
Despite the sharp selloff, stock valuations remain elevated. The S&P 500 was trading at 21 times its expected earnings for the next year as of Friday, well above its historical average of 15.8 times, according to LSEG Datastream.
“The market has been looking for a catalyst for a correction, and a mix of trade war concerns, geopolitical tensions, and economic uncertainty might just be it,” said Dan Coatsworth, an investment analyst at AJ Bell.
With investor sentiment shifting, Deutsche Bank analysts warn that the S&P 500 could fall to as low as 5,300, representing an additional 5.5pc decline if equity positioning continues to retreat.
Meanwhile, volatility levels are rising, with the Cboe Volatility Index (.VIX) hitting its highest close since August, a sign of growing nervousness among investors.
“The administration is still trying to define what a trade victory looks like—both politically and economically,” said Edward Al-Hussainy, a senior analyst at Columbia Threadneedle Investments. “Until they do, markets will continue to see these kinds of fluctuations.”
