The U.S. stock market has lost $5 trillion in value over the past three weeks. The S&P 500 index peaked at $52.06 trillion on February 19 but has since dropped to $46.78 trillion. Several factors have influenced this rapid 10% decline.
Ongoing tension between the U.S. and its major trading partners, with headlines about tariffs, has affected market performance. Signs of slowing economic growth, weak consumer sentiment surveys, and tepid outlooks from various sectors have also raised concerns. Barclays strategist Emmanuel Cau noted, “Our interactions with clients indicate that the mood music is changing.
While many see recession talk as premature, concerns about erratic policy from the new administration abound, with the ‘uncertainty tax’ hitting growth expectations.”
The unwinding of the growth trade related to artificial intelligence has been another significant factor. Stocks that benefitted from the AI boom, such as Nvidia and the Roundhill Magnificent Seven ETF, have seen sharp declines since February 19. Before the correction, the surge in AI-related stocks had raised concerns about overvaluation.
Despite the recent dip, the S&P 500 remains elevated, trading at 24.1-times its trailing 12-month earnings, which is well above its long-term average. On Tuesday, stocks racked up heavy losses for a second day in a volatile session as investors fixated on President Trump’s evolving trade war with Canada and the direction of the U.S. economy. The Dow Jones Industrial Average closed down 478 points, with 24 of its 30 components in the red.
Market turmoil driven by economic concerns
The S&P 500 shed 42 points, and the Nasdaq Composite also fell 32 points. Mr.
Trump’s decision to hike tariffs on imports from Canada, followed by a rollback announcement, has contributed to market uncertainty. Shares of companies with production plants in Canada, such as Stellantis, fell sharply. The sell-off came as Citigroup strategists lowered their view of U.S. equities, echoing other banks in curtailing bullish takes for 2025.
The technology-laden Nasdaq had its worst day since September 2022, and the Dow closed beneath its 200-moving average for the first time since late 2023. Adding to economic concerns, Delta Air Lines reduced its earnings outlook due to weaker U.S. demand. The market rout has been exacerbated by Trump’s comments that stoked fears of an impending recession.
In an interview with Fox News, Trump left open the possibility of a downturn, stating, “I hate to predict things like that. There is a period of transition, because what we’re doing is very big.”
The impact of Trump’s policies has led investment banks to raise their recession odds. Goldman Sachs economists increased their probability of a recession within the next 12 months from 15 percent to 20 percent, while JPMorgan Chase lifted the likelihood from 30 percent to 40 percent.
Democratic Senator Elizabeth Warren accused Trump of jeopardizing the economy with his policies, while Kevin Hassett, head of Trump’s National Economic Council, played down concerns about the economic outlook as “blips in the data.”
The US stock market continues to reel from a combination of policy decisions and investor uncertainty, underscoring broader concerns about the stability and direction of the American economy.
