Wall street took a sharp hit on Tuesday, plunging to their steepest single-day losses in three months, as investors reacted to US President Donald Trump's fresh tariff threats targeting Europe. The move sparked a widespread risk-off selloff across asset classes, triggering concerns about another round of market volatility.
All three major US indices posted their worst daily performance since October 10, last year. While the S&P 500 dropped 143.15 points, or 2.06%, to close at 6,796.86, Nasdaq Composite tumbled 561.07 points, or 2.39%, to 22,954.32. The Dow Jones Industrial Average fell 870.74 points, or 1.76%, settling at 48,488.59.
Both the S&P 500 and the Nasdaq ended the session below their 50-day moving averages, Reuters reported.
The impact was not limited to just equities. In other asset classes, gold climbed to fresh record highs as investors rushed towards safer assets, while US Treasuries came under renewed selling pressure, pushing borrowing costs higher. Bitcoin, which usually benefits during periods of market stress, declined more than 3%.
Tuesday marked the first chance for US investors to react to Trump’s weekend remarks, as markets were closed on Monday for Martin Luther King, Jr Day. Trump said that additional 10% import tariffs would be imposed from February 1 on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Great Britain, all countries already facing US tariffs. He further added that the levies would rise to 25% from June 1 and remain in place until the US reached a deal to purchase Greenland.
Meanwhile, leaders in Greenland, an autonomous territory of Denmark, and Denmark have maintained that the island is not for sale.
The return of tariff-related uncertainty was similar to market disruptions seen earlier in April, during what was referred to as “Liberation Day”, when Trump’s trade measures against global partners pushed the S&P 500 close to bear market territory.
The CBOE Volatility Index, a measure that indicates market fear, jumped to 20.09 points, its highest closing level since November 24. Trading activity also accelerated, with almost 20.6 billion shares changing hands on US exchanges, well above the 20-day average of 17.01 billion.
In India, the NSE and BSE benchmarks also ended the day in red, falling over 1% each, erroding investors of almost Rs 9.86 lakh crore. While Nifty50 slid 1.38% to close at 25,232.5, Sensex fell 1,065.71 points, or 1.28%, to settle at 82,180.47.
Elsewhere, on Wednesday, Asian stocks also showed losses for a third session, amid ongoing geopolitical tensions.
Short-term jitters or a longer mood swing?
While investor sentiment was clearly strained, questions remain over whether the sharp reaction is a short-lived response or signals deeper market implications.
Jamie Cox, managing partner at Harris Financial Group, said he was not seeing evidence of investors exiting the market. "I'm not at the point yet where I'm willing to say what is happening with Greenland, and the resurgence of the tariff threat back and forth, is going to precipitate a correction in the equities markets," he told Reuters. The expert further added that he would be surprised if markets fell by 3% to 5% this week.
Cox pointed instead to developments in bond markets as a potentially more significant risk. Japanese government bonds fell sharply on Tuesday, sending yields to record highs, while Tokyo stocks and the yen weakened after Prime Minister Sanae Takaichi called for a snap election, raising concerns over Japan’s fiscal health. The moves contributed to higher yields on longer-dated European government bonds, while selling pressure in US Treasuries was more pronounced at the long end of the curve.
Despite the renewed tariff threats and volatility across bond markets, the US economy continues to show strength. Investors are set to receive a series of economic indicators this week, including an update to third-quarter GDP, January PMI data and the Personal Consumption Expenditures report, the Federal Reserve’s preferred inflation measure.
The earnings season is also gathering momentum, with several major companies due to report results. Netflix was among those in focus, ending the session 0.8% lower ahead of its quarterly earnings announcement after market close.
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