Investors reacted with caution on Monday as U.S. stocks experienced a significant decline just hours before new tariffs on Canada and Mexico were set to take effect. The market downturn came alongside broader concerns about economic growth and weakening investor sentiment. Technology and energy sectors were among the hardest hit, while defensive stocks saw minor gains. Meanwhile, additional economic indicators pointed to a potential slowdown in the coming months, adding further pressure to the financial markets.
U.S. markets have previously responded negatively to tariff announcements, particularly when trade tensions escalate between major economies. Similar stock declines were observed when tariffs on Chinese goods were introduced during earlier trade disputes. However, unlike past cases where negotiations delayed or reduced tariffs, the latest measures are set to proceed as planned, potentially amplifying the market impact. Additionally, economic indicators now suggest more pronounced concerns about slowing growth, with manufacturing data showing signs of contraction.
How Did the Markets React?
The Dow Jones (BLACKBULL:US30) Industrial Average recorded a drop of nearly 700 points, or 1.48%, reflecting investor unease. The Nasdaq Composite fell 2.6%, while the S&P 500 declined by 1.7%. Major technology stocks saw notable losses, with Nvidia (NASDAQ:NVDA) down 8% and Intel dropping 4%. Among industrial stocks, Ford also experienced a nearly 2% decrease. While riskier assets were sold off, safe-haven investments such as gold saw an uptick of 1.85%.
What Are the Economic Indicators Suggesting?
Several signs point to economic weakening, with the ISM new orders index falling for the first time in six months. The employment index also showed continued contraction, having been in negative territory for eight out of the last nine months. Additionally, the Federal Reserve Bank of Atlanta’s GDPNow forecast projects a 2.8% decline in growth for the first quarter of 2025, reinforcing concerns about a slowdown. Consumer confidence, which dropped sharply last week, further signals potential economic strain.
President Donald Trump reaffirmed his commitment to the tariffs, stating that they are necessary to address economic imbalances with trading partners.
“No room left for Mexico or for Canada. No, the tariffs, you know, they’re all set. They go into effect tomorrow,”
he said while announcing TSMC’s $100 billion investment in U.S. semiconductor manufacturing. He also emphasized the broader impact of the tariff policy.
“It’s going to be very costly for people to take advantage of this country. They can’t come in and steal our money and steal our jobs and take our factories and take our businesses and expect not to be punished, and they’re being punished by tariffs,”
he added.
The bond market reflected investor caution, with the yield on the 10-year Treasury note hitting a three-month low at 4.2%. Meanwhile, oil prices declined by over 2% to $68.28 per barrel, suggesting concerns about reduced demand amid slowing economic activity. Cryptocurrencies also saw volatility, with Bitcoin prices falling below $90,000 following Trump’s announcement of a crypto strategic reserve plan.
The introduction of tariffs is likely to remain a focal point for investors as potential retaliatory measures from Canada and Mexico could further impact trade dynamics. While past tariff implementations have sometimes led to temporary market volatility, their long-term effects depend on broader economic conditions and responses from businesses and policymakers. Given the latest economic data, market participants will closely monitor signs of further slowdown and potential actions by the Federal Reserve. Investors may also shift strategies toward defensive assets if uncertainty persists.
