Stocks saw a steep decline for the second consecutive day on Tuesday as concerns over an escalating trade war gripped investors, following the implementation of long-anticipated tariffs by the Trump administration.
The S&P 500 dropped 1.2%, nearly wiping out all the gains the index had accumulated since Donald Trump’s election victory in November. The sharp pullback came after the U.S. president followed through on threats to impose significant tariffs on Canada, China, and Mexico, prompting retaliatory measures from these nations.
In response, Canada enacted 25% tariffs on over $100 billion worth of U.S. goods, while China imposed 20% duties on American agricultural products. Mexico, which has yet to announce its official response, indicated that details would come on Sunday.
Since the November 6 election, the stock market has lost roughly $3 trillion in value, according to Bloomberg data.
The downward trend was echoed across other major indices: the tech-heavy Nasdaq Composite fell 0.3%, nearing correction territory—defined as a 10% drop from its recent peak. Meanwhile, the Dow Jones Industrial Average plunged 1.5%. A brief recovery attempt faded as selling pressure intensified toward the close of trading.
Key sectors were hit hard, particularly automakers like GM and Ford, which rely heavily on manufacturing in Mexico. Chipotle, which sources half of its avocados from Mexico, saw its stock decline by over 2%. Retailers such as Target and Best Buy also took a hit after their CEOs warned of likely price hikes due to the new tariffs.
Other companies that suffered significant losses included United Airlines, Royal Caribbean Cruises, Citigroup, and Dollar Tree.
The broader sell-off coincided with signals of a cooling economy. A crucial manufacturing activity report raised concerns, and consumer confidence indexes pointed to growing caution among American households.
Traders are now betting on three potential interest rate cuts from the Federal Reserve this year as a response to the economic slowdown.
“The inflation outlook is rising, and there’s growing anxiety over economic growth,” said Mark Zandi, Chief Economist at Moody’s Analytics, in an interview with CNBC. “While we’re moving toward stagflation, the situation won’t mirror the severe conditions of the 1970s and 1980s, as the Fed is unlikely to let that happen.”
Looking ahead, Wednesday could be another critical day for the markets. President Trump is scheduled to address Congress, and Commerce Secretary Howard Lutnick suggested in a Fox Business interview that a potential compromise on the tariffs could be announced soon. “The president is likely to announce a middle-ground solution with Canada and Mexico,” Lutnick said, indicating the possibility of a more balanced approach in the coming days.
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