Volatile trading leaves US stocks on doorstep of a correction

The tech-heavy Nasdaq 100, which entered its own correction on March 7, fell 0.2%.

A fresh flurry of trade-policy headlines touched off another volatile trading day on Wall Street, with the S&P 500 Index’s three-week selloff briefly reaching 10% before a late rally pared the drop.

The equity benchmark ended lower by 0.5%, after earlier falling as much as 1.5%. That had it on track to meet the accepted definition of a correction, which would be the first since late 2023. It is now trading at 5,572, compared with the record closing high of 6,144.15 it hit last month. Technology behemoths Apple Inc., Nvidia Corp. and Alphabet Inc. were among the biggest contributors to the index’s losses on the session. The tech-heavy Nasdaq 100, which entered its own correction on March 7, fell 0.2%.

As has been the case for the past three weeks, rapid-fire developments in Trump administration trade policy sent stocks on a wild ride Tuesday. President Donald Trump’s threat shortly after 10 a.m. to ratchet up tariffs on Canada touched off the day’s biggest swoon. Dip buyers stepped in when the index fell 10% from its record. The rebound picked up steam on news Canada would hold off on some retaliatory tariffs and Ukraine would accept US plans for a truce with Russia in exchange for aid. Stocks then faded into the close, with tariffs on all aluminium and steel imports set to take effect at midnight.

The afternoon reprieve almost salvaged a session that at one point had US stocks trading at the lowest since September. Even after the bounce, the Cboe Volatility Index held above 27 and sentiment remained fragile.

“We are in a situation where the pendulum has shifted and fear has taken over,” said Adam Sarhan, founder of 50 Park Investments. “A lot of this has to do with the ‘Trump trade’ being unwound, but also concerns about growth going forward, and also the R-word, which is recession.”

Equities sentiment has soured rapidly in recent weeks as economists dial back their expectations for economic growth based on the potential for a brutal trade war. Those fears escalated after President Donald Trump said in a Fox News interview on March 9 the US economy faces “a period of transition” and refused to rule out the possibility of a recession.

Mega-Tech Selloff

“A reasonable base case for the US economy is growth trending in a 1.5%-2% range over the next year or so, down from about 2.5% over the past few years, based on tariff implementation,” Dennis DeBusschere of 22V Research wrote in a note to clients.

At the same time, the mega-cap tech stocks that have largely driven the S&P 500’s more than 50% gain over the past two years are caught in a selloff, as investors grow doubtful about the immediate future of artificial intelligence and, more broadly, retreat from riskier growth assets.

Meanwhile, sell-side strategists are warning about rising volatility in equities, with Morgan Stanley predicting the S&P 500 will drop as much as 5% to 5,500 in the first half as corporate earnings suffer from tariffs and lower fiscal spending. JPMorgan Chase & Co. and RBC Capital Markets have also tempered their bullish calls for 2025.

Investors’ rotation away from risk is on display in the S&P 500’s sector performance this year. Consumer discretionary and information technology stocks, which typically thrive when the economy is healthy, are the biggest decliners in 2025, while defensive groups such as health care, real estate and consumer staples leading the way.

The tariff noise has also widened the benchmark’s underperformance relative to its global peers, with US equity indexes lagging those in Europe, China, Mexico and Canada.

“The bears are in control right now and every time the market tries to bounce we see another violent leg down,” Sarhan said. “If this continues, fast forward a few more days, we are looking at a complete change in environment from a bull market to a bear market.”