Jamie Spencer
Stocks clawed back a portion of their earlier losses on Tuesday as investors attempted to navigate the latest escalation in global trade tensions.
Market Overview
The Dow Jones Industrial Average dropped 270 points, or 0.6%, extending Monday’s sharp 650-point decline. The S&P 500 shed 0.3%, curbing earlier losses after falling over 2% at session lows. The Nasdaq Composite rebounded 0.5%, supported by a 3% rise in Nvidia and Alphabet. The tech-heavy index had initially dropped more than 2% before reversing its losses.
At its lowest point, the Nasdaq briefly touched correction territory, defined as a 10% decline from a recent high.
Trade Tensions Weigh on Markets
The market volatility followed the U.S. implementing 25% tariffs on imports from Canada and Mexico at midnight, alongside an additional 10% levy on Chinese goods.
“There is a decidedly ‘Risk Off’ trade in the market over the last week or so,” said Brian Mulberry, client portfolio manager at Zacks Investment Management. “Now that some tariffs are a reality, the mood of investors is turning more negative.”
China responded by imposing tariffs of up to 15% on U.S. goods. Mexican President Claudia Sheinbaum announced that Mexico would retaliate with tariffs and other countermeasures, to be detailed later in the week. Canadian Prime Minister Justin Trudeau also pledged a 25% levy on U.S. goods, prompting Trump to threaten even higher tariffs on Canada.
Sector Impacts and Stock Performance
Trade-sensitive stocks took a hit, with GM and Ford dropping 3% and 2%, respectively. Chipotle, which sources about half of its avocados from Mexico, slipped more than 2%.
Nvidia provided a rare bright spot, rallying to trim its year-to-date losses to just over 12% following a recent 7% slump in the last five trading days.
The S&P 500’s losses for the week have now pushed the index into negative territory for 2025. Many investors had hoped for a last-minute deal to avert the full impact of tariffs, but losses accelerated on Monday after Trump confirmed the levies would proceed. Nearly 70% of S&P 500 stocks closed lower on Tuesday, and the small-cap Russell 2000 tracked additional declines.
Economic Concerns Mount
Recent economic data has raised fresh concerns about the health of the U.S. economy, and tariffs have further unsettled investors. Banking and retail stocks led Tuesday’s declines, as traders worried that higher costs from tariffs could slow economic activity.
“While Tuesday’s tariffs are a go, it remains very unclear on just how long these tariffs will remain,” said Clark Geranen, chief market strategist at CalBay Investments. “We tend to believe these are more of a negotiation tactic and not the start of a long and drawn-out reciprocal trade war. Still, in these situations, investors sell first and ask questions later.”
Looking Ahead: Trump’s Address to Congress
With Tuesday’s losses, the S&P 500 has now dipped below its Election Day closing level from November, when Trump secured a second term in office. Traders will closely monitor Trump’s speech to Congress on Tuesday night for potential updates on trade policies, which were a key pillar of his campaign.
