Wall Street falls again as losses wipe out all post-election gains for the S&P 500

Wall Street stocks suffered further losses as the trade war between the U.S. and its major trading partners escalated, with the S&P 500 erasing all gains since Donald Trump was elected president. This event triggered market concerns about a global economic slowdown, significantly impacting investor sentiment. The escalating trade tensions have introduced considerable uncertainty into the market.

These losses also spread to the Australian stock market, with the S&P/ASX 200 index opening down 0.2%, or 18.4 points, to 8179.70 points. This followed the Trump administration's imposition of tariffs on imports from Canada and Mexico, and the doubling of tariffs on Chinese imports. All three countries have announced retaliatory measures, further exacerbating trade tensions, and creating a complex global trade environment.

The S&P 500 fell 1.2%, with more than 80% of the stocks in the benchmark index closing lower. The Dow Jones Industrial Average fell 1.6%, and the Nasdaq Composite fell 0.4%. The tech-heavy Nasdaq once fell 10% from its recent closing high, reaching a level typically considered a "correction," but gains by Nvidia, Microsoft, and other tech giants helped narrow the losses. The resilience of certain tech stocks provided a slight buffer against broader market declines.

Financial stocks were among the biggest drags on the S&P 500. JPMorgan Chase fell 4%, and Bank of America fell 6.3%. European markets also fell sharply, with Germany's DAX index falling 3.5%, as automakers took a hit. Asian stock markets saw relatively smaller declines. "It's hard for the market to set expectations for the prospect of this trade war," said Ross Mayfield, investment strategy analyst at Baird. "This is clearly a level above anything we saw in (Trump's) first term." The interconnectedness of global financial markets amplified the impact of trade tensions.

The market may soon face more variables in the tariff saga. President Trump is scheduled to address a joint session of Congress tonight. Commerce Secretary Howard Lutnick told Fox Business News after the close that the U.S. may "reach a compromise" with Canada and Mexico on tariffs, possibly as early as Wednesday. Retailers, including Target and Best Buy, have also issued warnings as they release their latest financial reports. These potential developments could introduce further volatility into the market.

The recent drop in U.S. stocks has erased all market gains since Trump's election in November. The previous gains were largely built on hopes for policies that could strengthen the U.S. economy and businesses. However, concerns that tariffs will raise consumer prices and reignite inflation have been weighing on the economy and Wall Street. Target shares fell 3% despite beating Wall Street's earnings expectations, stating that its early-year profits will face "significant pressure" due to tariffs and other costs. The impact of tariffs on corporate profitability is a growing concern for investors.

Best Buy shares plummeted 13.3%, making them the biggest decliner in the S&P 500, after the company issued lower-than-expected earnings forecasts to investors and warned of the impact of tariffs. "International trade is critical to our business and industry," said Best Buy CEO Corie Barry. Barry stated that China and Mexico are the top two sources of products sold by Best Buy and that suppliers are expected to pass on the costs of tariffs, which could lead to higher prices for U.S. consumers. The potential for increased consumer prices is a key concern related to the ongoing trade disputes.

The concerns about profits came after a series of economic reports that sent worrying signals, including that U.S. households have become more pessimistic about inflation and have reduced spending. Consumer spending has largely driven the growth of the U.S. economy in the face of high interest rates. Wall Street has been hoping that the Federal Reserve will continue to cut interest rates in 2025. But the Fed has sent more cautious signals because of the uncertainty about the economic impact of tariffs. The Fed is expected to hold interest rates steady at its meeting in late March. The interplay between inflation, interest rates, and consumer spending is crucial for economic stability.

The Federal Reserve raised interest rates to their highest level in two decades to curb inflation. As inflation approached its 2% target, the Fed began cutting benchmark interest rates in 2024. But inflation remains stubbornly above that target, and tariffs could threaten to drive prices higher, exacerbating inflation. In the bond market, U.S. Treasury yields were mixed. The 10-year U.S. Treasury yield rose to 4.20% from 4.16% late Monday. But it is still sharply lower than where it was last month, near 4.80%, as concerns about the strength of the U.S. economy have grown. The bond market's reaction reflects investor uncertainty and evolving economic expectations.

"Since tariffs are already in place, and there's no guarantee they're temporary, that's permeating the bond market, and we're seeing a higher inflation threat eroding the value of the 10-year Treasury," said Sam Stovall, chief investment strategist at CFRA. The 2-year U.S. Treasury yield held steady at 3.94%. The persistent threat of inflation continues to influence bond market dynamics.

In total, the S&P 500 fell 71.57 points to 5778.15. The Dow Jones Industrial Average fell 670 points to 42520.99, and the Nasdaq fell 65.03 points to 18285.16. These declines reflect the overall negative sentiment and increased volatility in the market.