The U.S. stock market has taken a significant hit, with the S&P 500 sliding into correction territory on Thursday. Investors are growing increasingly pessimistic about the Trump administration’s whipsawing policy pronouncements over the past few weeks. On-again, off-again tariffs and mass layoffs of federal workers have fomented unease on Wall Street.
The S&P 500 fell 1.4 percent on Thursday, bringing it down 10.1 percent from its peak less than a month ago. Other major indexes, including the Russell 2000 and the tech-heavy Nasdaq Composite, had already fallen into correction. The Nasdaq fell 2 percent on Thursday, while the Russell 2000 index of smaller companies was 1.6 percent lower.
Investors are worried that uncertainty around the effects of President Trump’s policies is causing consumers to spend less and discouraging businesses from investing. This reticence could drive the economy into a downturn, forcing investors to reassess company valuations. “I think what markets are telling us is that they are very concerned about the potential for a recession,” said Kristina Hooper, chief global market strategist at Invesco.
“That is certainly not what markets expected going into 2025.”
Since the 2008-09 financial crisis, there have been nearly a dozen corrections in the S&P 500. Three of those resulted in bear markets. The market’s current situation is adding to concerns among investors about whether unprecedented policies can sustain economic growth and equity prices.
As the Trump administration navigates international trade issues and domestic economic policies, the financial markets are reacting with volatility and caution. On Monday, US stocks plunged as concerns about President Donald Trump’s economic policy led to a widespread market selloff. The Dow closed down 890 points, or 2.08%, after losing more than 1,100 points at one point.
The broader S&P 500 dropped by 2.7%, while the tech-heavy Nasdaq Composite plummeted 4%. It marked the worst day of the year for the Dow and S&P 500, and the biggest single-day decline for the Nasdaq since September 2022. In an interview that aired Sunday, Trump stated that the US economy would see “a period of transition” and did not rule out a recession.
“I hate to predict things like that. There is a period of transition because what we’re doing is very big,” he said on Fox News’ “Sunday Morning Futures With Maria Bartiromo.”
Tech stocks led the selloff, with major companies like Alphabet, Amazon, Microsoft, Nvidia, and Tesla ending the day in the red.
Trump tariffs impact market sentiment
Tesla saw a significant drop of 15.4%, erasing its post-election gains as its stock has fallen almost 45% this year. Wall Street’s fear gauge, the VIX, surged to its highest level this year. Bitcoin also slid to around $78,000 on Monday, its lowest level since November, amid a selloff of risky assets.
The uncertainty around Trump’s on-again, off-again tariff policy has been hammering stocks this month. The S&P 500 posted its worst week since September, sliding 3.1% last week. “The stock market is losing its confidence in the Trump 2.0 policies,” said Ed Yardeni, president of Yardeni Research.
David Bahnsen, chief investment officer at the Bahnsen Group, noted, “The talk of tariffs is, in a lot of ways, worse than the implementation of them.” He added, “I do not believe the administration knows how the tariff situation will play out, but it will likely cause economic damage before a resolution is reached.”
The yield on the 10-year US Treasury slid to 4.225% as investors sought the safety of government bonds amid economic uncertainty. Investors are keenly awaiting monthly inflation data expected on Wednesday and Thursday to gauge whether inflation remained stubborn in February. Over the past three weeks, the U.S. stock market has lost approximately $5 trillion in market value.
The S&P 500, which peaked at $52.06 trillion in market value on February 19, has significantly dropped to $46.78 trillion, according to FactSet. This sharp 10% decline from an all-time high into correction territory has raised concerns among investors and analysts. The drop has been influenced by various factors, including geopolitical uncertainties and fears over economic growth slowing down.
President’s complex trade relationships with major trading partners have led to headlines regarding tariffs, which, in turn, appear to have affected market trends. Barclays strategist Emmanuel Cau noted in a memo to clients that mood among investors is shifting. Cau stated, “Our interactions with clients indicate that the mood music is changing.
While many see recession talk as premature, concerns about erratic policy from the new administration abound, with the ‘uncertainty tax’ hitting growth expectations.”
Another significant contributor to the market’s downturn has been the devaluation of stocks related to artificial intelligence. From February 19, Nvidia experienced a 17% drop, and the Roundhill Magnificent Seven ETF fell 16%. These declines suggest that the market may have been overvalued, particularly in areas linked to AI, where some stocks previously reached market caps exceeding $3 trillion.
Despite the recent correction, S&P 500 remains traded at 24.1-times its trailing 12-month earnings, which is notably above its long-term average. The coming weeks will be critical as investors and policymakers observe whether this correction signals a longer-term bearish trend or a temporary adjustment.
