Wall Street nosedives as Trump’s tariffs hit stock markets globally

Worries about President Donald Trump’s tariffs are hurting US stocks on Monday as financial markets worldwide drop on concerns about a potential trade war.

The S&P 500 was down 1.4% in early trading following similar losses for stock markets across Asia and Europe. The Dow Jones Industrial Average was down 435 points, or 1%, as of 9:35 a.m. Eastern time, and the Nasdaq composite was 1.8% lower.

Everything from bitcoin to the Mexican peso fell, not just the stocks of US companies expected to be the first to feel pain from Trump’s tariffs on goods imported from Canada, Mexico and China. On Wall Street, some of the sharpest losses hit Big Tech and other companies that could be hit hardest by higher interest rates.

The fear is that Trump’s tariffs will push up prices for groceries, electronics and all kinds of other bills for US households, putting upward pressure on a US inflation rate that’s largely been slowing since its peak three summers ago. Stubbornly high or accelerating inflation could keep the Federal Reserve from cutting interest rates, which it began doing in September to give the US economy a boost.

To be sure, US stock prices remain close to their all-time high, which was set less than two weeks ago. And Monday’s losses weren’t as bad as some other recent drops, such as one in December when the Fed hinted fewer rate cuts may arrive in 2025 than expected.

But much of Wall Street had been hoping Trump’s talk of tariffs through the presidential campaign was just that, talk, and an opening point for negotiations with US trading partners. Now that Trump has followed through, the fear is about how much retaliation will occur in what could be an escalating trade war that damages economies worldwide, including the United States.

“The uncertainty at this stage is tremendous - not only of how these eventual negotiations will play out, but worries about how this is only the tip of the iceberg and more tariffs are on the horizon,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management.

Traders on Wall Street are already paring expectations for how many cuts to interest rates the Federal Reserve may deliver this year, if any. Lower interest rates can encourage US employers to hire more workers, while also goosing prices for investment, but the downside is they can give inflation more fuel.

“Living in the Midwest, I might feel the trade war soonest and most,” said Brian Jacobsen, chief economist at Annex Wealth Management, because of how much crude oil flows over the northern US border to make gasoline. “Our refiners can’t easily switch away from Canadian crude.” Crude oil prices rose, suggesting inflationary pressure may already be starting. A barrel of benchmark US crude rose 1.3% to $73.45. Brent crude, the international benchmark, rose 0.8% to $76.29.

Trump himself warned Americans they may feel “some pain” from the tariffs, which he said would be “worth the price” to make America great again. He also said Sunday night that import taxes will “definitely happen” with the European Union and possibly with the United Kingdom as well.

Among all the uncertainties upsetting Wall Street was the basic question of how Trump would decide whether and when Canada, China and Mexico are doing enough to lift the tariffs.

“It’s hard to map out how long this could last,” Jacobsen said.

Wall Street famously hates uncertainty, and prices fell nearly across the board. Nearly 90% of all the stocks in the S&P 500 dropped.

Constellation Brands, the company that sells Modelo and Corona beers and also sells alcohol in Canada, fell 5.6%. Automakers, which import heavily from Mexico, also sank. General Motors dropped 5%.

Instead of stocks and crypto, investors moved instead into US government bonds, which are seen as some of the safest possible investments. The resulting rally in their prices drove longer-term Treasury yields down.

The yield on the 10-year Treasury fell to 4.50% from 4.55% late Friday.

It’s a reprieve, at least temporarily, from a rise in longer-term Treasury yields that has shaken Wall Street in recent months. Yields have climbed in part on expectations for just such tariffs from Trump, and the possible result of higher interest rates they could entail. Short-term Treasury yields rose Monday as expectations waned for cuts to rates from the Fed. The yield on the two-year Treasury rose to 4.24% from 4.21% Higher yields put pressure on all kinds of investments, but they’re particularly burdensome on stocks seen as the most expensive.

That puts the spotlight on companies like Nvidia and other winners of the artificial-intelligence boom. Nvidia fell 5.3% and was the heaviest single weight on the S&P 500.

They’d already come under pressure last week, after a Chinese upstart said it had developed a large language model that could perform as well as big US rivals, but without having to use the most expensive, top-flight chips.

That raised doubt about whether all the investment Wall Street had assumed would occur for chips, large data centers and electricity would really have to occur. Such assumptions had driven stocks like Nvidia, Constellation Energy and others to record after record.

The tariffs took centre stage in a week where other events would typically take centre stage, including a report on Friday showing how many workers US employers hired last month.

Associated Press