Stocks in the US and Asia fall as fears grow over economic slowdown

Asian stock markets generally fell, following a sell-off in US stocks. The catalyst for this sell-off was US President Trump not ruling out the possibility that his tariff policies could trigger a recession in the world's largest economy, further unsettling investors.

This came after Trump, in a television interview, said the US economy was in a "transition period" when asked about concerns over a potential recession. Since those remarks aired on Sunday, senior officials and advisors in the Trump administration have been working to calm investor fears, though their efforts have had limited success so far.

Charu Chanana, an investment strategist at Saxo, told the BBC that "the previous concept of Trump as a stock market president is being reassessed." Tim Waterer, chief market analyst at KCM Trade, stated, "Trump's next move on tariffs leaves political leaders guessing, but the problem is he's also leaving investors guessing, and that's reflected in the depressed market sentiment," highlighting the uncertainty surrounding future trade policies.

In Tuesday morning trading, Japan's Nikkei 225 index fell 1.7%, South Korea's Kospi index dropped 1.5%, and Hong Kong's Hang Seng index declined 0.7%. On Monday in New York, the S&P 500, which tracks the US's largest companies, closed down 2.7%, and the Dow Jones Industrial Average fell 2%. The tech-heavy Nasdaq index was particularly hard hit, falling 4%. Tesla shares plunged 15.4%, and artificial intelligence chip giant Nvidia fell more than 5%. Other major tech stocks, including Meta, Amazon, and Alphabet, also experienced significant declines.

A White House official told reporters after Monday's close that "there's a big disconnect we're seeing in the stock market's 'animal spirits' versus what we're actually seeing from corporate and business leaders." The official added, "The latter is obviously much more meaningful for medium- and long-term economic development than the former," suggesting a disconnect between market sentiment and underlying economic fundamentals. White House spokesman Koush Desai said in a separate statement later that day that "industry leaders" had responded to Trump's agenda, including tariffs, with "trillions of dollars in committed investments."

Last week, major US stock markets retreated to levels before Trump's election victory in November of last year, a victory initially welcomed by investors who hoped for tax cuts and deregulation. Investors are concerned that Trump's tariffs – taxes on goods entering the country – will lead to higher prices and weaken growth in the world's largest economy, potentially offsetting any benefits from deregulation or tax cuts. Rachel Winter, investment manager at Killik & Co, said on the "Today" program: "I think the tariffs that Trump is imposing will undoubtedly lead to inflation at some point."

Economist Mohamed El-Erian said investors were initially optimistic about Trump's plans for deregulation and lower taxes while underestimating the likelihood of a trade war. He said the recent stock market declines (starting last week) reflect an adjustment of those bets, indicating a shift in market expectations. "It's a complete change in market expectations," he added, noting that investors are also reacting to signs that businesses and households are beginning to postpone spending due to uncertainty, which could harm economic growth, creating a negative feedback loop.

But President Trump's economic advisor, Kevin Hassett, countered those predicting such a bleak outlook. Hassett, in an interview with CNBC, said there are many reasons to be optimistic about the US economy, and that tariffs on Canada, Mexico, and China have already brought manufacturing and jobs to the US, despite market volatility. "There are a lot of reasons to be very optimistic about the economy going forward," he said. He acknowledged some "little glitches" in the data for the quarter, which he blamed on the timing of Trump's tariffs and "Biden's legacy," downplaying the broader economic concerns.