Global markets today: What’s behind the US stock market’s 2-day slide? EXPLAINED with 5 key factors
The US stock market faced losses for a second day on Tuesday, albeit milder than Monday's declines. Investor concerns about the tariff war and recession fears continued to create uncertainty.
The US stock market suffered losses for the second consecutive session on Tuesday, even though the magnitude of losses was less severe compared to what Wall Street witnessed on Monday. Concerns over the impact of the tariff war and fears of a looming recession kept investors on edge.
The S&P 500 dropped 0.76 per cent, while the tech-heavy Nasdaq slipped 0.18 per cent.
The market is trying to factor in the impact of US President Donald Trump's aggressive tariff policies against the country's trade partners. However, uncertainty remains high, with investors fearing a deeper economic fallout from a global trade war.
"It is a drop, which is driven by multiple factors, including trade policy uncertainties and fears of a potential recession. However, the primary concern has been the ongoing back-and-forth tariff announcements, which have unsettled investors and further dampened market sentiment," said Trivesh D., COO of Tradejini.
Why is the US stock market falling?
Market participants highlight five key factors that are driving the decline in the US stock market. Let's take a look:
1. Donald Trump's aggressive tariff policy
Trump is pushing aggressive tariff policies against the US’s key trade allies. On Tuesday, he announced plans to raise tariffs to 50 per cent on steel and aluminium imports from Canada before taking a U-turn within hours, reported Reuters.
In recent weeks, he has proposed and imposed tariffs on some of the world’s largest economies, including China, India, the European Union, Canada, and Mexico, fueling concerns over a potential severe economic fallout.
"A key factor behind the recent market selloff is the uncertainty surrounding trade tariffs and their economic implications," said Adam Turnquist, Chief Technical Strategist for LPL Financial.
"The lack of clarity regarding tariff policies has made it difficult for markets to stage a meaningful recovery, as investors hesitate to make significant moves without a clearer outlook," said Turnquist.
2. Concerns over a looming recession
Concerns are mounting that Trump's tariff policies will lead the world's largest economy into recession.
According to a Barrons report, due to the to the impact of tariffs on the economy, Goldman Sachs Chief Economist Jan Hatzius cut his 2025 US GDP growth forecast to 1.7 per cent against a 2.4 per cent growth projection at the start of this year.
"Concerns about a possible economic slowdown—or even a recession—have added to the turmoil, with the technology sector being the most affected. With US President Trump firm on imposing reciprocal tariffs starting in April, volatility is expected to remain elevated despite near-term risks," said Trivesh of Tradejini.
While recent US macroeconomic data has not shown major signs of a slowdown, there are growing concerns that a trade war could push the US economy into a recession.
The jobs report released last Friday showed that employers added 1,51,000 jobs in February, up from January’s revised 1,25,000 but only half of the number added in November and December.
Several important economic reports will be released this week, including the Job Openings and Labor Turnover Survey (JOLTS), consumer inflation, and wholesale inflation.
3. Stretched valuation
Several experts have pointed out the US market's stretched valuation primarily due to significant gains in tech stocks.
"In our Annual Newsletter, 2025 of Ashika Global Family Office Services, we were extremely cautious about US Stock Market valuations. As apparently, the market was mispricing the NASDAQ 100 valuations compared to US treasury yield," said Amit Jain, co-founder of Ashika Global.
"We still remember when we were writing the Global Market Outlook on 1 January 2025, NASDAQ 100 was trading at an earning yield of 2.9 per cent compared to the US G-Sec yield of 4.6 per cent. To us, it was insane, but somehow, global investors were unable to realise it at that moment in time. It seems now that global investors are realising this mistake of mispricing the US tech sector above US treasury G-Sec yield,” said Jain.
At a time when US stock price-to-earnings (PE) multiples look stretched, experts warn that tariffs could impact corporate earnings, making valuations even loftier.
Investors are concerned that the trade war, moderate corporate earnings and stretched valuations will weigh on long-term returns.
4. Money moving from riskier equities
Experts pointed out that amid heightened uncertainty, investors are turning to less riskier assets such as US bonds.
Investors are rushing to buy bonds as the benchmark US 10-year treasury yield has fallen nearly 60 basis points since mid-January amid recession risks.
When investors buy more US Treasuries, their prices rise, and since bond yields move inversely to prices, the yield falls.
5. Risk of a sticky inflation
Trump’s tariff policies could fuel higher inflation in the US, posing a serious challenge to the Federal Reserve’s efforts to keep it under control. Experts say a rise in inflation could limit the Fed’s ability to cut interest rates aggressively, narrowing its policy options.
As Mint reported earlier, US Federal Reserve Chair Jerome Powell has said that the central bank will likely keep its benchmark interest rate unchanged in the coming months as it waits for widespread uncertainty stemming from Trump's policies.
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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
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