U.S. stock markets down after Trump signals economic pain ahead
Growing fears that U.S. President Donald Trump is willing to endure a recession to combat American trade deficits is sending stock market investors into panic mode, with the S&P 500 Index, the U.S. benchmark, extending its slide after wiping out all its gains since the U.S. election in November.
Over the weekend, Mr. Trump warned that his plan to bring more manufacturing back to the United States could lead to a “period of transition” – a gentle way of saying economic pain. Neither he nor his cabinet members walked the commentary back on Monday, and investors kept dumping stocks.
The S&P 500 slumped 2.7 per cent Monday, and the tech-heavy Nasdaq 100 Index was hit even harder, dropping 4 per cent. Both indexes are now trading below their early November levels as investors rethink their optimism about Mr. Trump’s promise of a pro-growth agenda.
They must now weigh signs of slower economic growth, the potential for rising inflation and the chaos created by dramatic cuts to the U.S. federal work force orchestrated by Elon Musk and his Department of Government Efficiency. There are also fears the U.S. government will shut down on Friday, because Congress may not reach a deal to keep funding flowing.
With so many moving parts, it’s tough to know how everything will shake out. “It’s getting harder to make out the shape of the economy through the fog of Trump 2.0’s firings and tariffs,” market strategist Ed Yardeni wrote in a note to clients Monday.
Last week, Mr. Trump paused several proposed tariffs on imports from Canada and Mexico until April 2, yet tariffs on steel and aluminum are still due to take effect on March 12, and he continues to complain about Canada’s policies on dairy and softwood lumber.
For weeks, Mr. Yardeni has ascribed low odds to a U.S. recession this year, citing solid economic fundamentals despite the recent noise. But he has now raised the potential for an economic downturn to 35 per cent, up from 20 per cent.
As the stock market falls, investors and strategists must also factor a new variable into their assessment: A correction could shake the confidence of wealthy consumers, who have been driving economic gains in the U.S. The top 10 per cent of U.S. earners now account for 49.7 per cent of the country’s spending, according to Moody’s Analytics – the highest share since the data set started in 1989. Now that the market is turning, they might pull back on spending.
While some investors are likely taking profits simply because the U.S. stock market has been so frothy, the market downturn is being fuelled by fears of slower economic growth and higher inflation spurred by Mr. Trump’s tariff plan.
Not only are tariffs imposed by the U.S. likely to raise prices for Americans, it is becoming clearer that other countries are increasingly likely to retaliate with tariffs or taxes of their own, as Canada has. The potential of that is spooking investors.
On Monday, Ontario Premier Doug Ford confirmed plans to apply a 25-per-cent surcharge to his province’s electricity exports to the U.S., potentially hurting residents of Michigan, Minnesota and New York.
Speaking on Bloomberg Television late Monday, Mr. Ford reiterated his message that he views Americans as allies, but he urged Mr. Trump to look at the recent investor panic for guidance on his tariff plans. “When the market speaks, you have to listen,” Mr. Ford said.
Many investors have bought recent dips in stocks on the belief that Mr. Trump would quickly reverse policies that spark a negative reaction in markets. But his language Sunday created more confusion.
Not only did Mr. Trump suggest that Americans may need to endure some economic pain, he would not offer any certainty on where he is going with his trade policy. Asked by Fox News anchor Maria Bartiromo if he can offer business leaders any sense of stability, Mr. Trump did the opposite, saying, “the tariffs could go up as time goes by.”
The confusion is weighing on risky assets of all stripes. Shares of Mr. Musk’s Tesla Inc. plunged 15.4 per cent on Monday, the stock’s largest single-day drop since September, 2020, and cryptocurrencies have also struggled despite Mr. Trump’s executive order to create a strategic reserve of digital assets such as bitcoin. The price of bitcoin has dropped 13.6 per cent since he signed the order on March 6.
Late Monday, the White House put out a statement addressing the recent stock market turmoil, noting that multiple companies have recently made investment commitments in the U.S. and adding that Mr. Trump “delivered historic job, wage and investment growth in his first term, and is set to do so again in his second term.”
This article was first reported by The Globe and Mail
