A rout on Wall Street deepened on Tuesday as companies and investors digested the impact of President Donald Trump’s decision to impose tariffs on the U.S.’s biggest trading partners, as well as retaliatory tariffs from Canada, China and Mexico.
The S&P 500 shed 101 points, or 1.7%, to 5,748 Tuesday morning, while the tech-heavy Nasdaq composite index tumbled 1.5%. The Dow Jones Industrial Average dropped 1.8%.
Tuesday’s declines add to a big sell-off Monday after President Trump said he had decided to move forward with 25% tariffs on nearly all goods imported from Mexico and Canada, and an additional 10% on Chinese imports, with Wall Street concerned that the import duties could threaten U.S. economic growth and reignite inflation.
“The market finally took the Trump administration at its word, and the realization that the tariff talk wasn’t just a negotiating tactic is starting to sink in,” Chris Zaccarelli, chief investment officer for Northlight Asset Management in a note yesterday. The market’s trajectory could continue downward, he added, depending on how long the tariffs remain in effect.
The burgeoning trade war between the U.S., China, Canada and Mexico is helping to extend a recent slump for U.S. stocks that was prompted by signs of weakness in the economy. Shares of Target and Best Buy fell on Tuesday after the retailers warned of higher prices for consumers due to tariffs.
Markets in Europe fell sharply while stocks in Asia saw more modest declines.
“Last month’s reprieve was just a temporary break in the downward trend, because a trade war is something the market didn’t believe was possible, so as one (or many) start to unfold, the market will begin pricing in the inevitable damage that will be done to our economy,” Zaccarelli said.
Treasury Secretary Scott Bessent downplayed the market rout on Fox News, saying that the Trump administration is “focused on Main Street.”
“Wall Street’s done great, Wall Street can continue to do fine. But we have a focus on small business and consumers,” he said.
A “lose-lose situation”
China’s retaliatory tariffs on American beef, corn, soy and other farm products announced Tuesday expanded the potential impact of Mr. Trump’s trade tactics, said Francis Lun, CEO of Geo Securities in Hong Kong.
“I don’t think China will buy any more U.S. farm products. The orders will go to South America,” Lun said. “I think all in all, it’s a lose-lose situation. Nobody gains anything.”
Anxiety over tariffs is also bleeding into the corporate side of the economic equation. Target reported Tuesday that sales and profit in the crucial holiday quarter both fell from a year ago, though they were better than expected. The Minnesota retailer said there will be “meaningful pressure” on its profits to start the year because of tariffs and other costs.
Target shares tumbled $7.34, or 6.1%, to $113.26 in late morning trading.
Many had hoped Mr. Trump would choose a less painful path on global trade. Monday’s loss shaved the S&P 500’s gain since Election Day down to just over 1% from a peak of more than 6%. That rally had been built largely on hopes for policies from Mr. Trump that would strengthen the U.S. economy and businesses.
After the S&P 500 set a record last month following a parade of fatter-than-expected profit reports from big U.S. companies, the market began diving following weaker-than-expected reports on the U.S. economy, including a couple showing U.S. households are getting much more pessimistic about inflation because of the threat of tariffs. Such pessimism is not unwarranted, according to analysts.
“Inflation is set to surge as the cost of everyday goods rises, squeezing corporate margins and reshaping supply chains across industries,” warns Nigel Green, CEO of investment advisory firm deVere Group which forecasts that inflation in the US could rise by as much as 2.1%, “putting pressure on the Federal Reserve to maintain a more hawkish stance for longer than markets had anticipated,” as a result of tariffs.
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