Stocks tumbled on Tuesday as President Trump’s broad tariffs against Canada, Mexico and China reverberated through global markets, intensifying investors’ concerns over the health of the economy.
The S&P 500 fell as much as 2 percent, before losses moderated in the afternoon and the day ended down 1.2 percent. The tech-heavy Nasdaq Composite index briefly dropped into what is known as a correction — a drop of 10 percent or more from its recent peak — before investors appeared to “buy the dip,” prompting a modest recovery in afternoon trading.
The selling on Tuesday was broad based, with roughly 80 percent of the stocks in the S&P 500 lower for the day. That was true even after the afternoon rally, with the recovery propelled by some of the largest tech companies like Nvidia and Alphabet, which have a large impact on the overall index’s value because of their size. Out of 11 sectors, tech was the only one to end the day higher and it was only by a fraction of a percentage point.
Sharp declines on Wall Street in recent days have wiped out the gains made since Mr. Trump’s election victory in November, as investors’ hopes of deregulation, business-friendly policies and restraint on tariffs have given way to fears over the potentially damaging impact of the levies that went into effect on Tuesday.
Investors appeared to rush into the safety of government debt, initially helping to lower the yield on the 10-year Treasury note to its lowest level since October, before reversing course later in the afternoon. Yields move inversely to prices. Mounting concerns about the economy’s ability to withstand incoming tariffs for too long were also evident in a shift in investor expectations of the number of times the Federal Reserve will cut interest rates.
In the near term, tariffs are likely to accelerate inflation, with the Fed holding rates elevated to deal with it. But the longer-term effect, economists say, will be slower economic growth and the risk of an economic downturn, in which the Fed would very likely rapidly cut interest rates.
Investors now expect the central bank to cut rates as many as three times this year, beginning in June, a sudden change from early this year, when they predicted just one rate cut. That shift appeared to reflect worries that the Fed will be pushed into lowering rates quickly later in the year to prop up an ailing economy.
“While a trade war might have short-term reflationary implications,” said Ian Lyngen, an interest rate strategist at BMO Capital Market, “it also carries with it significant risks to global growth.”
The Nasdaq Composite has fallen 9.4 percent from its high in December, although much of the sell-off has materialized over the past two weeks. The S&P 500 has fallen 6 percent from its high in mid-February. The decline of major stock indexes toward corrections and bear markets plays a psychological role, signaling to traders that a sell-off may not be just a brief blip but that it has extended to a point of significantly lowering company valuations.
The Russell 2000 index of smaller companies, which is more exposed to the outlook for the U.S. economy, has already fallen into correction and is now approaching a bear market, defined as a drop of 20 percent or more from its recent peak. The index reached a new high only in November, after a drastic recovery under the previous administration.
Among the companies that struggled, Ford fell roughly 3 percent, General Motors dropped 4.6 percent, and Tesla was down 3.7 percent. Financial and industrial stocks, considered to be correlated with the ups and downs of the economy, were the hardest-hit sectors of the index.
Airlines, which were already facing simmering concerns from investors, also suffered steep losses amid fears that a trade war could slow the economy and rein in travel spending. United Airlines fell 5.8 percent, and Delta dropped about 6.4 percent.
“It’s a confluence of factors,” said Tom Fitzgerald, an airline industry analyst for the investment bank TD Cowen. “It tends to be a sector where investors sell first and ask questions later.”
European stocks had earlier come under pressure as investors weighed the prospects of a global trade war after China and Canada quickly imposed tariffs of their own.
The Euro Stoxx 50 index, which comprises the eurozone’s largest companies, fell 2.5 percent, its worst one-day performance since July 2023. Germany’s benchmark index, the DAX, dropped 3.5 percent, erasing its gains from the previous day when it hit a record on the promises for more European military spending. It was the German benchmark’s worst day in roughly three years.
Shares of German automakers and suppliers were hit especially hard as many have assembly plants in Mexico for vehicles they sell in the United States. Volkswagen fell about 3 percent, and BMW dropped more than 5 percent.
The U.S. dollar index, which measures the currency against a basket of other major currencies, was 1 percent lower, with both the Canadian Dollar and Mexican Peso roughly flat to the American currency.
Oil prices also fell after the OPEC oil cartel and some of its allies said on Monday that they would increase production. Brent crude, the international benchmark, dropped 0.8 percent to $71.04 a barrel.
