US stocks fell sharply on Monday, wiping out much of their gains since President Donald Trump’s election, after he announced that tariffs on Canada and Mexico would take effect within hours.
The S&P 500 dropped 1.8% following Trump’s statement that there was “no room left” for negotiations to lower the tariffs, which will begin Tuesday. The move dashed Wall Street‘s hopes for a softer trade policy.
Why it matters
Monday’s losses cut the S&P 500’s post-Election Day gains to just over 1%, down from a peak of more than 6%. The market had rallied on hopes that Trump’s policies would strengthen the economy, but recent trade tensions and economic data have raised fears of a slowdown. The Dow Jones Industrial Average fell 649 points, or 1.5%, while the Nasdaq composite slumped 2.6%.
Between the lines
The market decline came amid broader concerns about US economic growth. A report from the Institute for Supply Management (ISM) on Monday showed that manufacturing activity remained in expansion but at a slower pace than economists expected. More concerningly, manufacturers saw a contraction in new orders, while prices rose amid discussions over who will bear the cost of Trump’s tariffs.
Timothy Fiore, chair of ISM’s manufacturing survey committee, noted, “Demand eased, production stabilized, and destaffing continued as panelists’ companies experience the first operational shock of the new administration’s tariff policy.”
What they’re saying
Wall Street had anticipated that Trump might use the tariffs as leverage for negotiations rather than enforcing them. However, the decision to proceed unsettled investors already wary of economic uncertainties.
“Markets were looking for another 11th-hour deal to further delay tariffs, but aren’t going to get one this time,” said Jamie Cox, managing partner at Harris Financial Group. “The next phase is to endure them. Markets have to price that reality, and those numbers are painted red.”
James St Aubin, chief investment officer at Ocean Park Asset Management, echoed the concerns: “It’s just more of a continuation of a string of bad economic news that tends to put a little bit of a dampener on the optimism we saw from fourth-quarter earnings.”
Zoom in
Certain sectors and stocks were hit particularly hard. Nvidia fell 8.8%, and Tesla slipped 2.8%. Retail giant Kroger dropped 3% after its Chairman and CEO Rodney McMullen resigned following an internal investigation into his personal conduct.
Even stocks connected to cryptocurrency took a hit. MicroStrategy, now known as Strategy, slid 1.8%, while Coinbase dropped 4.6% despite Trump’s weekend announcement that his administration was moving forward with a crypto strategic reserve.
The global picture
The effects of Trump’s trade policies are being felt worldwide. In China, manufacturers reported an increase in orders in February as buyers rushed to secure goods ahead of higher US tariffs. Trump’s 10% tariff on Chinese imports rose to 20% on Tuesday, and the administration has also ended the “de minimis” loophole that exempted imports worth less than $800 from tariffs.
European markets, in contrast, performed better. Germany’s DAX surged 2.6%, and France’s CAC 40 rose 1.1% following a report that showed inflation was easing in February. This bolstered expectations that the European Central Bank may cut interest rates later this week. Meanwhile, in Hong Kong, bubble tea chain Mixue Bingcheng soared 43% in its market debut, boosting the Hang Seng index by 0.3%.
What’s next
Investors will be closely watching upcoming economic reports and Federal Reserve signals. The yield on the 10-year Treasury fell to 4.16% from 4.24% before the manufacturing report’s release, reflecting concerns about a slowing economy. Typically, falling Treasury yields can boost stocks, but this time the decline is driven by fears of a broader economic downturn.
With inflation worries still present, the Federal Reserve may have limited room to cut interest rates to stimulate growth. Market expectations currently point to at least two 25-basis-point rate cuts by the end of the year, but economic conditions could force a reassessment of that outlook.
(With inputs from agencies)