The S&P 500 (.SPX) is down 4.3% since President Donald Trump took office on January 20, with tariffs being one key concern for investors as many believe they can harm economic growth and be inflationary.
"The administration seems to be trying to play a ping pong game by announcing something and then pulling it back on tariffs, but this time it’s not working," said Art Hogan, market strategist at B. Riley.
A punishing selloff in stocks on Thursday came as Trump exempted goods from Canada and Mexico for a month from the 25% tariffs that he had imposed earlier this week. The Nasdaq (.IXIC) was down 2.6% on the day, showing it has been in a correction since its record high close on December 16.
The latest tariff announcement came as only a partial relief to stocks, as Wall Street traders question how a trade policy based on tariffs will impact the broader economy.
Trump sees tariffs as a way to increase the country's revenue and boost growth as well as a negotiating tool with other countries, but investors fear the trade policies may weaken consumer confidence and freeze companies' capital spending.
"The rational economic response to business leaders when there's such a high degree of uncertainty is to sit on their hands and just defer making decisions," said Bill Sterling, global strategist at GW&K Investment Management.
The CBOE Volatility Index (.VIX), a Wall Street fear gauge, closed Thursday at its highest level since December 18, at 24.87.
FOG OF CONFUSION
Trump's first announcement came in on February 1, when he signed executive orders on imports from Canada, Mexico and China. Since then, the president has retreated on some measures only to later reaffirm them and back off once again.
The lack of clarity is causing investors to unwind equities positions.
"On-again, off-again tariffs may be worse than just getting the tariffs done with. The uncertainty isn’t resolved, it’s just prolonged," said Brian Jacobsen, chief economist at Annex Wealth Management.
Some market participants also fear Trump's trade policy could have broader impacts on U.S. diplomatic relations, according to Dennis Dick, a trader at Triple D Trading.
China announced on Wednesday more stimulus to counter-attack U.S. tariffs, while European leaders have started to rethink how they fund their own security, with Germany's likely next government agreeing on the biggest overhaul to fiscal policy since the country's reunification.
Canadian Prime Minister Justin Trudeau said on Thursday the country will be in a trade war with the U.S. for the foreseeable future, while U.S. Treasury Secretary Scott Bessent called him "a numbskull."
Investors have started to question whether Trump will repeat the more stock market-friendly approach from his first administration, the so-called 'Trump put'."
“The Trump bump for equities has now turned into the Trump slump," said Gene Goldman, chief investment officer at Cetera Investment Management.
