Stock Market Plunges as U.S. Trade War Escalates, Erasing S&P 500 Gains

Stocks tumbled on Tuesday as the U.S. escalated its trade war, imposing tariffs on Canada, Mexico, and China, prompting swift retaliatory measures. The S&P 500 fell 1.2%, erasing all gains since Election Day, while the Dow dropped 1.6% and the Nasdaq declined 0.4%. Financial stocks led losses, with JPMorgan Chase down 4% and Bank of America losing 6.3%. European and Asian markets also saw declines. Retailers like Target and Best Buy warned of profit pressures due to tariffs. The Federal Reserve remains cautious on interest rate cuts, fearing inflation. Treasury yields fluctuated as investors assessed risks. Markets now await Trump’s congressional address and potential trade negotiations.

Stock Market Plunges as U.S. Trade War Escalates, Erasing S&P 500 Gains

Stocks continued their decline on Wall Street Tuesday as escalating trade tensions between the U.S. and key trading partners erased all S&P 500 gains since Election Day.

The Trump administration imposed tariffs on Canadian and Mexican imports starting Tuesday while doubling existing tariffs on Chinese goods. In response, all three countries announced retaliatory measures, raising concerns about a potential slowdown in the global economy.

The S&P 500 dropped 1.2%, with over 80% of its stocks closing lower. The Dow Jones Industrial Average slid 1.6%, while the Nasdaq composite fell 0.4%. Although the Nasdaq briefly touched a 10% decline from its recent peak—a threshold considered a market correction—gains in major tech stocks like Nvidia and Microsoft helped limit losses.

Financial stocks weighed heavily on the market, with JPMorgan Chase falling 4% and Bank of America tumbling 6.3%. European markets also suffered sharp losses, particularly Germany’s DAX, which declined 3.5% as automakers faced significant setbacks. Asian markets recorded more moderate declines.

Investment strategist Ross Mayfield noted that the market is struggling to gauge the potential extent of this trade conflict, calling it a “clear escalation” from Trump’s first term.

Additional developments in the tariff situation could emerge soon, as President Trump is set to address Congress Tuesday night. After the market closed, Commerce Secretary Howard Lutnick hinted at possible negotiations with Canada and Mexico, suggesting an announcement could come as early as Wednesday.

The recent stock market decline has erased gains made since Trump’s election in November, which had been fueled by expectations of pro-business policies. However, fears of tariffs driving up consumer prices and reigniting inflation are now pressuring both the economy and financial markets.

Retailers, including Target and Best Buy, have warned about the impact of tariffs. Despite surpassing earnings forecasts, Target’s stock fell 3% as the company projected “meaningful pressure” on profits due to rising costs. Best Buy suffered the steepest loss in the S&P 500, plunging 13.3% after issuing a weaker-than-expected earnings outlook and citing tariff concerns. CEO Corie Barry emphasized the importance of international trade to the company, noting that China and Mexico are key suppliers for Best Buy’s products.

The new tariffs include a 25% tax on imports from Canada and Mexico, with an additional 10% duty on Canadian energy products. The 10% tariff imposed on Chinese imports in February has now doubled to 20%.

Retaliatory measures followed swiftly. China announced tariffs of up to 15% on key U.S. agricultural products, including chicken, pork, soy, and beef, while also imposing restrictions on American businesses. Canada plans to impose tariffs on over $100 billion worth of U.S. goods within 21 days, and Mexico has announced its own set of tariffs on American imports.

S&P 500 companies are wrapping up their latest quarterly earnings reports, posting an overall 18% growth in the fourth quarter. However, Wall Street has scaled back expectations for the current quarter, lowering growth forecasts from 11% to about 7%.

According to Charles Schwab’s Kevin Gordon, investors are paying close attention to how companies assess the impact of tariffs on future growth.

Concerns over corporate earnings add to growing economic uncertainty, with recent reports showing U.S. households becoming more cautious about inflation and cutting back on spending—an important driver of economic growth amid high interest rates.

Investors had hoped for further interest rate cuts from the Federal Reserve in 2025, but the central bank has adopted a more cautious stance, citing the economic uncertainty caused by tariffs. The Fed is expected to hold rates steady at its upcoming March meeting.

After raising interest rates to a two-decade high to combat inflation, the Fed began cutting rates in 2024 as inflation approached its 2% target. However, persistent inflationary pressures—exacerbated by tariffs—could limit further rate reductions.

In the bond market, Treasury yields showed mixed movement. The 10-year Treasury yield rose to 4.20% from 4.16% on Monday, though it remains well below last month’s peak of 4.80% as economic concerns mount.

Sam Stovall, chief investment strategist at CFRA, noted that tariffs introduce long-term inflation risks, which are already affecting bond markets by eroding the value of the 10-year Treasury note.

The yield on the 2-year Treasury held steady at 3.94%.

Overall, the S&P 500 fell 71.57 points to close at 5,778.15, while the Dow dropped 670 points to 42,520.99. The Nasdaq declined 65.03 points, ending at 18,285.16.