Wall Street continued its slide amid growing worries of a possible recession as President Trump ramped up a trade war with Canada and Citigroup warned that US stocks look poised to underperform markets overseas.
The Dow Jones Industrial Average on Tuesday fell by nearly 600 points before paring back some of its losses at the start of trading on Tuesday — one day after it plunged by nearly 900 points.
The blue-chip index, which had dropped 2.1% on Monday, was off 580 points, or 1.4%, in early New York trades. The S&P 500 — which dropped 2.7% a day earlier — was off 1.1%. The Nasdaq was recently off 0.8% after plunging 4% a day earlier.
Meanwhile, Trump announced Tuesday that his administration will implement an additional 25% tariff on Canadian steel and aluminum imports, effectively doubling the total duties to 50%.
The increased tariffs are set to take effect Wednesday morning, according to Trump.
He stated that the decision was made in direct response to Ontario’s recent move to impose a 25% levy on electricity exports to the United States.
Ontario Premier Doug Ford’s tariff on electricity was itself a retaliatory measure against Trump’s earlier decision to enforce broad 25% tariffs on Canadian imports.
The stock market volatility comes as Citigroup strategists downgraded their outlook on US stocks from overweight to neutral, signaling that the dominance of American-based equities is taking a temporary pause, according to Bloomberg News.
The bank’s analysts noted in a report that they expect weaker economic data in the coming months and that uncertainty surrounding tariffs and government job cuts contributed to one of the worst weeks this century for the S&P 500 relative to global markets.
“US exceptionalism is at least pausing” for the coming few months, the strategists wrote.
“The news flow from the US economy is likely to undershoot the rest of the world in coming months,” they added.
HSBC Holdings Plc strategists echoed this sentiment, also downgrading US equities to neutral on Monday, citing “better opportunities elsewhere for now.”
Ned Davis Research made a similar shift last week, pointing to deteriorating market momentum.
For the past year, US economic policymakers have concentrated on steering the economy toward a “soft landing,” aiming to curb inflation without triggering a recession.
However, the new administration appears to be reconsidering that approach, with officials openly acknowledging that their revised strategy might lead to a more turbulent economic downturn.
In recent days, President Trump and his senior advisers have signaled a shift in perspective, showing little concern over the possibility that economic uncertainty could dampen private-sector investment.
They have suggested that a period of “detox” in spending and hiring might be necessary, downplayed the significance of declining stock values, and indicated that inflation may rise in the short term.
Speaking on Fox News in an interview that aired Sunday, Trump sidestepped concerns about an impending recession.
“There is a period of transition because what we’re doing is very big,” he stated. “What I have to do is build a strong country. You can’t really watch the stock market.”
Later that evening, aboard Air Force One, he doubled down on his stance when asked to clarify his remarks.
“Tariffs are going to be the greatest thing we’ve ever done as a country. It’s going to make our country rich again,” he asserted.
His comments rattled financial markets on Monday, sending the Dow Jones Industrial Average plummeting 890 points, a 2.1% decline.
All three major indices are now below their levels from Election Day last November.
Meanwhile, Delta Air Lines cut its first-quarter earnings and revenue forecast after the markets closed, citing weakening domestic demand.
Delta CEO Ed Bastian told CNBC that the company noticed a “pretty significant shift” in sentiment in February, as “consumer spending started to stall.”
Business travel has also taken a hit.
“Where there are places where people just aren’t quite sure what’s going to happen, companies are pulling back,” Bastian added.
Among the administration’s top advisers, Commerce Secretary Howard Lutnick has cautioned that tariffs could lead to a one-time spike in prices.
Treasury Secretary Scott Bessent suggested that, after years of economic expansion fueled by government spending and rising asset prices, a reset might be inevitable.
“We’ll see whether there’s pain,” Bessent said Friday on CNBC.
Trump inherited an economy that was steadily growing, with robust stock market performance but underlying weaknesses, including a stagnant housing sector and a slowing labor market.
Early in the year, investors largely overlooked these vulnerabilities, expecting the new administration to prioritize growth initiatives.
Stock markets surged after Trump’s election in November as investors anticipated pro-business policies such as tax cuts and deregulation, reminiscent of his first term in 2017.
“People could only see the good side of what Trump was promising to do. That has basically evaporated, and now, we’re back to recession watch,” Dario Perkins, an economist at GlobalData TS Lombard in London, told the Wall Street Journal.
Analysts have noted a marked shift in the administration’s messaging.
Initially, officials seemed intent on downplaying concerns about rising government bond yields and preemptively placing blame for any economic downturn on the outgoing Biden administration.
Meanwhile, Goldman Sachs, which has consistently projected stronger-than-average economic growth in recent years, has taken a more cautious stance.
Its analysts now expect weaker growth compared to other Wall Street forecasts and have increased their 12-month recession probability from 15% to 20%.
