The US economy has been rocked by weeks of turmoil as the stock market officially entered “correction” territory with more than $5trillion wiped out in 21 days.
The S&P 500, the index of the 500 biggest companies in America, is down 10% in just three weeks as initial bullishness about President Donald Trump gave way to tariff-driven anxiety. On February 19, at its all-time high, the S&P sat at $52.06trillion, but by yesterday, had dipped to $45.78trillion, a total loss of $5.28trillion in about three weeks and what traders officially call a “market correction”.
The Dow Jones Industrial Average dropped 537 points, or 1.3% on Thursday, and the Nasdaq composite fell 2%. The dizzying, battering swings for stocks have been coming not just day to day but also hour to hour, and the Dow hurtled between a slight gain and a drop of 689 points through Thursday’s trading.
The precipitous decline has come on the back of Donald Trump waging tariff wars with several major US allies including Canada and the EU, with specific tariffs on steel and aluminium on top. At the same time, Trump has openly talked of annexing Greenland and has told Canada it will waive all tariffs if it becomes “the 51st state” and gives up its sovereignty.
Though the markets are slightly up at the time of writing, there are fears the erratic and ever-changing nature of tariff policies, let alone the threat of waging war, could trim more value off the US economy in the coming months.
“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,” Barclays strategist Emmanuel Cau said in a note to clients.
Mr Trump’s latest escalation came on Thursday when he threatened 200% tariffs on Champagne and other European wines, unless the European Union rolls back a “nasty” tariff announced on US whiskey.
The European Union unveiled that move on Wednesday, in response to US tariffs on European steel and aluminium.
US households and businesses have already reported drops in confidence because of all the uncertainty about which tariffs will stick from Mr Trump’s barrage of on-again, off-again announcements.
That has raised fears about a pullback in spending that could sap energy from the economy. Some US businesses say they have already begun to see a change in their customers’ behaviour because of the uncertainty. Good news came on both those economic fronts on Thursday.
One report showed inflation at the wholesale level last month was milder than economists expected. It followed a similarly encouraging report from the prior day on inflation that US consumers are feeling.
But “the question for markets is whether good news on the inflation front can make itself heard above the noise of the ever-changing tariff story,” said Chris Larkin, managing director, trading and investing, at E-Trade from Morgan Stanley.
