Trump's Tariffs Rattle Investors As US Market Sell-Off Wipes Out $4 Trillion

President Donald Trump's tariff policies have unsettled investors, sparking fears of an economic downturn and triggering a stock market sell-off that has erased USD 4 trillion from the S&P 500's peak last month-when Wall Street had been largely supportive of Trump's agenda, reported Reuters.

A series of new policies from the Trump administration has heightened uncertainty for businesses, consumers, and investors, particularly the ongoing back-and-forth tariff disputes with major trading partners such as Canada, Mexico, and China.

"We've seen clearly a big sentiment shift," said Ayako Yoshioka, senior investment strategist at Wealth Enhancement. "A lot of what has worked is not working now."

The market downturn intensified on Monday, with the benchmark S&P 500 (.SPX) dropping 2.7%-its largest daily fall this year. Meanwhile, the Nasdaq Composite (.IXIC) plummeted 4%, marking its worst single-day decline since September 2022.

On Monday, the S&P 500 closed 8.6% lower than its record high on 19 February, losing more than USD 4 trillion in value and approaching a 10% decline, which would signal a correction for the index. The tech-heavy Nasdaq has already fallen over 10% from its December high.

Over the weekend, Trump refused to speculate on whether the US might face a recession, despite growing investor concerns over the economic impact of his trade policies.

"The amount of uncertainty that has been created by the tariff wars with regard to Canada, Mexico and Europe is causing boards and C-suites to reconsider the pathway forward," said Peter Orszag, CEO of Lazard, speaking at the CERAWeek conference in Houston.

"People can understand ongoing tensions with China, but the Canada, Mexico, and Europe part is confusing. Unless that gets resolved over the next month or so, this could do real damage to the economic prospects of the US and M&A activity," Orszag added.

Market and Investor Reaction

Delta Air Lines (DAL.N) cut its first-quarter profit forecast by 50% on Monday, leading to a 14% drop in its share price during after-hours trading. CEO Ed Bastian attributed the downward revision to growing uncertainty in the US economy.

Investors are also closely watching developments in Washington, where lawmakers are scrambling to pass a funding bill to avoid a partial federal government shutdown. Meanwhile, a key US inflation report is due on Wednesday.

"The Trump administration seems a little more accepting of the idea that they're OK with the market falling, and they're potentially even OK with a recession in order to exact their broader goals," said Ross Mayfield, investment strategist at Baird. "I think that's a big wake-up call for Wall Street."

As of July 2024, data from the Federal Reserve Bank of St. Louis showed that the bottom 50% of US households, ranked by wealth, owned only around 1% of total corporate equities and mutual fund shares. In contrast, the wealthiest 10% controlled 87%.

The S&P 500 had recorded consecutive annual gains of more than 20% in 2023 and 2024, largely driven by major technology firms such as Nvidia (NVDA.O) and Tesla (TSLA.O). However, these stocks have struggled in 2025, dragging down broader indices.

On Monday, the technology sector of the S&P 500 (.SPLRCT) fell by 4.3%, with Apple (AAPL.O) and Nvidia both slipping around 5%. Tesla plunged 15%, wiping out approximately USD 125 billion in market value.

Other high-risk assets also suffered, with Bitcoin falling by 5%. However, some defensive sectors performed better, with the utilities sector (.SPLRCU) gaining 1% on the day. Safe-haven assets such as US government bonds saw increased demand, with the yield on benchmark 10-year Treasury notes falling to 4.22%.

Investor Concerns and Market Outlook

The S&P 500 has now erased all gains made since Trump's re-election on 5 November and is down nearly 3% in that period. According to a Goldman Sachs note released on Monday, hedge funds reduced their stock market exposure on Friday at the highest rate in over two years.

Investors had initially been optimistic about Trump's pro-growth agenda, including tax cuts and deregulation, but ongoing uncertainty surrounding tariffs and policy changes-such as potential federal workforce reductions-has dampened sentiment.

"It was the overwhelming consensus that everything was going to be this great environment once President Trump came into office," said Michael O'Rourke, chief market strategist at JonesTrading.

"Every time you have structural change, you're going to have uncertainty, and you're going to have friction," O'Rourke noted. "It's understandable people are starting to be a little concerned and starting to take profits."

Even after the recent sell-off, US stock market valuations remain well above historical averages. As of Friday, the S&P 500 was trading at just over 21 times earnings estimates for the next year-well above its long-term average forward price-to-earnings ratio of 15.8, according to LSEG Datastream.

"Many people have been worried about elevated valuations among US equities for some time and looking for the catalyst for a market correction," said Dan Coatsworth, investment analyst at AJ Bell.

"A combination of concerns about a trade war, geopolitical tensions and an uncertain economic outlook could be that catalyst."

Investor exposure to equities has declined in recent weeks, dipping slightly below a neutral position for the first time since August, according to Deutsche Bank analysts.

If market sentiment continues to weaken-mirroring the trade war period between the US and China in 2018-2019-the S&P 500 could slide further, possibly reaching 5,300, which would be another 5.5% decline from current levels, the analysts warned.

In another indicator of investor unease, the Cboe Volatility Index (.VIX) on Monday climbed to its highest closing level since August.

The administration is "still trying to figure out how to define a win politically, economically, and what is the right timeframe," said Edward Al-Hussainy, senior interest rate and currency analyst at Columbia Threadneedle Investments. "And until they do that, it's going to be like this every week."