On Tuesday, the markets were once again in a state of turmoil as investors grappled with President Trump’s persistent push for tariffs and its potential repercussions on the global economy.
The upheaval continued after President Trump issued fresh warnings about imposing hefty tariffs on Canada. The S&P 500 index saw a nearly 1% drop, deepening its decline from Monday, which was noted as the worst trading day of the year. Meanwhile, the Nasdaq Composite, known for its technology stocks, fluctuated between gains and losses after plummeting by 4% on Monday.
This recent wave of sell-offs has nudged the S&P 500 to about 10% below its last record high, pushing it into what Wall Street calls a correction—an important benchmark for market movements. Briefly slipping into correction territory, the index mirrored the uneasy mood.
Across the globe, European markets experienced slight downturns while stock performances in Asia varied.
For investors, decoding the administration’s tariff plans has been challenging. Initially perceived as a tactic for negotiation, Trump’s aggressive tariff rhetoric has left investors re-evaluating the risks of his strategy.
By Tuesday, President Trump had announced that the tariffs on Canadian steel and aluminum would be doubled to 50%, effective the following day. He also threatened crippling tariffs on Canadian automobile imports if Canada didn’t lower its trade levies with the U.S., potentially devastating its car industry.
Shares in American car companies like Ford, GM, and Stellantis, which owns brands such as Chrysler and Dodge, took significant hits.
Worries about growth now overshadow fears of inflation rekindling due to tariffs, as evidenced by declining government bond yields. Investors are also contending with threats of a government shutdown and additional tariffs slated for next month.
“We foresee more volatility and potential weakness in equity markets in the forthcoming weeks,” UBS analysts commented on Tuesday morning.
Joining other voices in raising the prospect of a serious economic downturn, UBS stated this isn’t yet their main forecast.
“We maintain that while Trump’s hardline trade stance could weigh on growth, it’s unlikely to tip the U.S. into a recession,” UBS analysts explained.
Tesla, after suffering its worst drop in years on Monday, saw a modest 1% rise. President Trump, acknowledging the market turbulence, expressed his support for Elon Musk, Tesla’s CEO and one of his advisers, with a social media post promising to buy a new Tesla.
Airline stocks wavered as well, with Delta Air Lines and American Airlines voicing concerns over deteriorating economic conditions. Delta reported a cut in its profit forecast for the first quarter, citing waning consumer demand for air travel, a sentiment echoed by American Airlines who also predicted worse-than-expected losses for this quarter due to weakening domestic leisure travel.
Delta’s stocks fell over 8% at market open while American’s declined by about 6%. Major carriers like Germany’s Lufthansa and the company behind British Airways, along with Asian airlines such as Korean Air, reported declines too.
With President Trump’s shifting stance on tariffs causing uncertainty, investors have been exercising increasing caution.
The combined anxiety over inflationary pressure from tariffs and growing pessimism about the economy have spurred a sell-off in what used to be considered an overheated market.
Although the current economic indicators remain strong, surveys among consumers and business leaders are showing signs of growing gloom. JPMorgan’s analysts now estimate a 40% likelihood of a global recession.
“Focus remains on the broad economic concerns that sparked yesterday’s significant risk-off trading,” noted John Canavan, lead U.S. analyst at Oxford Economics in a Tuesday memo.
Uncertain economic conditions were further fanned by President Trump’s comments in a Sunday interview, where he did not dismiss the possibility of a recession, instead describing the economy as being in “transition.” The administration’s stern approach to tariffs with key trade partners like Canada, Mexico, and China continues to increase investor anxiety.
In a note, Takahide Kiuchi, Executive Economist at Nomura Research Institute, pointed out how Trump’s persistent tariff policy remains unsettling for financial markets.
According to Kiuchi, “Even if the tariffs result in inflation and economic strain, President Trump would likely fault former President Biden rather than acknowledge any missteps in his own economic policies.”
Goldman Sachs, in its recent analysis, cautioned that stocks in Taiwan, South Korea, and Japan might be the most vulnerable in Asia if the Trump administration enacts a universal tariff stride on trading partners.
Technology giants in Japan felt the impact with Sony, SoftBank, Hitachi, and Fujitsu each dropping over 2% on Tuesday. The Taiwanese chipmaker TSMC and Apple supplier Foxconn also dipped more than 2%.
Japanese automaker Toyota Motor’s shares fell nearly 3%, with Hyundai Motor in South Korea experiencing a slight dip. These automakers are bracing for a potential 25% tariff on foreign cars that Trump hinted could come into effect as early as April 2nd.
Bruce Pang, an adjunct associate professor at the Chinese University of Hong Kong Business School, noted that Chinese markets are diverging from U.S. trends. Chinese stocks are buoyed by the government’s 5% growth target and recent encouraging statements from leaders about supporting private enterprise and entrepreneurship.
“These factors together help ease the pressures from the Trump administration’s news developments,” he commented.
So far this year, Chinese companies listed on the Hong Kong Stock Exchange have gained about 20%, contrasting with a 4% decline in the S&P 500.
