Markets were rattled again on Tuesday, as investors puzzled through President Trump’s commitment to tariffs and the potential economic fallout.
The latest blow came after Mr. Trump made new threats of steep tariffs against Canada. The S&P 500 index slipped nearly 1 percent, extending the loss from Monday, its worst day of the year. The tech-heavy Nasdaq Composite index wavered between gains and losses, after a 4 percent drop on Monday.
Recent waves of selling have left the S&P 500 nearly 10 percent below its last record, in mid-February, which would signify a symbolic milestone known on Wall Street as a correction. The Nasdaq has already fallen into a correction.
Elsewhere, European markets fell slightly and stocks in Asia were mixed.
Investors are struggling to understand the administration’s messaging on tariffs. Having previously thought Mr. Trump’s more extreme tariff rhetoric was mostly a negotiating tool, investors have started to worry they may have been too blasé about the risks inherent in his strategy.
On Tuesday, Mr. Trump said he would double the planned tariff on steel and aluminum imported from Canada, to 50 percent, set to come into effect on Wednesday. He also said that if Canada did not lower its levies on trade with the United States, he would set tariffs on cars from Canada so high that it would “permanently shut down” the Canadian car industry.
The shares of Ford, GM and Stellantis — the maker of Chrysler, Dodge, Jeep and Ram vehicles — all fell sharply.
Mounting fears about the impact on growth appear to outweigh worries that tariffs could reignite inflation, reflected in falling government bond yields. Investors are also contending with the possibility of a government shutdown this week, and additional tariffs put in place next month.
“Over the coming weeks, we expect further volatility and potential weakness in equity markets,” analysts at UBS noted on Tuesday morning.
The Swiss Bank joined others in raising the odds of a severe economic downturn later this year, but it noted that this was still not its main prediction.
“Our base case remains that the Trump administration’s aggressive stance on trade will weigh on growth, but not so much as to drive the U.S. into recession,” the UBS analysts said.
Airline stocks also wobbled on Tuesday after Delta Air Lines and American Airlines issued warnings about a worsening economy. Delta said late on Monday that it had cut its profit forecast for the first three months of the year, saying that rising concern among consumers was denting demand for air travel. American echoed those concerns early on Tuesday, noting that “softness in the domestic leisure segment” would result in a bigger loss this quarter than previously expected.
Delta’s stock was down more than 7 percent, while American’s lost nearly 6 percent. Airlines in Europe, like Germany’s Lufthansa and the parent of British Airways, and Asia, like Korean Air, also posted declines.
Investors have become increasingly cautious in recent weeks as Mr. Trump has flip-flopped on tariffs, causing confusion and uncertainty.
Growing unease about the inflationary effects of the tariffs, coupled with a darkening mood about the economy, provided the catalyst for a sell-off in a market that investors have long worried was overvalued.
While current economic data has remained robust, surveys of consumers, business leaders and economists are growing pessimistic. Analysts at JPMorgan now say there is a 40 percent chance for a global recession.
“The focus will remain on the broader economic concern that spurred yesterday’s huge risk-off trade,” John Canavan, the lead U.S. analyst at Oxford Economics, said in a note on Tuesday.
Analysts pointed to Mr. Trump’s comments from an interview that aired on Sunday when he refused to rule out the possibility of a recession, stating that the economy is undergoing “a period of transition.” The Trump administration has offered little to assuage investors’ fears, continuing to drive a hard line on tariffs on the major U.S. trading partners Canada, Mexico and China.
In a research note on Tuesday, Takahide Kiuchi, executive economist at Nomura Research Institute, said financial markets were caught off-guard by Mr. Trump’s “unwavering” commitment to push ahead with tariffs despite the economic pain that it might cause.
“Even if the tariffs lead to inflation and economic deterioration, President Trump is likely to place the blame squarely on former President Biden rather than acknowledge any shortcomings in his own economic policies,” Mr. Kiuchi wrote.
In a recent note, Goldman Sachs said the stocks making up the main equity indexes in Taiwan, South Korea and Japan would be the most exposed in Asia if the Trump administration imposed a universal tariff on trading partners.
Technology shares declined in Japan on Tuesday, with Sony, SoftBank, Hitachi and Fujitsu each falling more than 2 percent. The Taiwanese chip giant TSMC and the Apple supplier Foxconn were both down more than 2 percent.
Shares of Japanese automaker Toyota Motor fell nearly 3 percent, while South Korean automaker Hyundai Motor dipped slightly. Japanese and South Korean automakers are expected to be particularly damaged by a potential 25 percent tariff on foreign cars that Mr. Trump has indicated could take effect as soon as April 2.
Bruce Pang, an adjunct associate professor at the Chinese University of Hong Kong business school, said Chinese markets are moving out of step with the United States and other global counterparts. Chinese shares are getting a lift from the government’s ambitious target of around 5 percent growth and recent business-friendly comments about supporting the private sector and entrepreneurship from top leaders.
“These factors collectively help mitigate the headwinds arising from the Trump administration’s news flows,” he said.
In the year to date, shares of Chinese companies listed on the Hong Kong Stock Exchange have risen about 20 percent, compared with a 4 percent slide on the S&P 500.
