By Lewis Krauskopf and Saqib Iqbal Ahmed
NEW YORK (Reuters) -Investor fears that trade tariffs will spark an economic downturn are driving a sell-off in equities that has wiped out trillions of dollars in value, a major reversal for Wall Street which had been fired-up by President Donald Trump’s agenda.
A barrage of new Trump policies including back and forth tariff moves against major trading partners like Canada, Mexico and China has increased uncertainty for businesses, consumers and investors.
“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 recent selloff in stocks deepened on Monday, with the benchmark S&P 500 down about 2.5% in afternoon trade and the Nasdaq Composite sliding over 4%.
The S&P 500 on Monday was down more than 8% from its February 19 record high, shedding over $4 trillion in market value since then and nearing a 10% decline that would represent a correction for the index. The tech-heavy Nasdaq ended Thursday down more than 10% from its December high.
Trump over the weekend declined to predict whether the U.S. could face a recession amid stock market concerns about the impact of his tariff actions.
Beyond the tariff uncertainty, investors are watching to see if lawmakers can pass a funding bill to avert a partial federal government shutdown, while a crucial report on inflation looms 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.”
The S&P 500 tallied back-to-back gains of over 20% in 2023 and 2024, led by megacap technology and tech-related stocks such as Nvidia and Tesla that have struggled so far in 2025 and dragged major indexes down with them.
Those tech and megacap stocks that had propelled the market higher the past two years were getting hit hard on Monday. The S&P 500’s technology sector dropped over 4%, while Apple fell nearly 6% and Tesla tumbled 14%.
Some defensive areas of the market were outperforming, with the utilities sector logging a gain on the day. Safe-haven U.S. government debt saw more demand on Monday, with benchmark 10-year Treasury yields, which move inversely to prices, down to about 4.22%.
INVESTOR UNEASE
The S&P 500 has given up all gains recorded since Trump’s November 5 election, and it is down more than 2% in that time.
Investors had expressed optimism that Trump’s expected pro-growth agenda including tax cuts and deregulation would benefit stocks, but uncertainty over tariffs and other changes including federal workforce cuts, have 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 said. “It’s understandable people are starting to be a little concerned and starting to take profits.”
While stock valuations have moderated with the recent selloff, the market broadly is still significantly above historic averages. The S&P 500 as of Friday was at just above 21 times earnings estimates for the next year, compared to its long-term average forward P/E of 15.8, according to LSEG Datastream.
“Many people have been worried about elevated valuations among U.S. 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.”
Investors’ equity positioning has fallen in recent weeks, dipping to slightly underweight for the first time since briefly hitting that level in August, Deutsche Bank analysts said in a note on Friday.
A further retreat to the bottom of the historic range for equities weighting, as seen in during Trump’s U.S.-China trade war in 2018-2019, could drag the S&P 500 to as low as 5,300, or down another roughly 6% from current levels, they added.
In another sign of growing investor unease, the Cboe Volatility index on Monday hit its highest level since late December.
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.”
(Reporting by Lewis Krauskopf; additional reporting by Saqib Iqbal Ahmed, Davide Barbuscia and Caroline Valetkevitch in New York and Lisa Pauline Mattackal and Manya Saini in Bengaluru; editing by Megan Davies, Christina Fincher and Cynthia Osterman)
