U.S. stocks plunged on Monday as relentless tariff wrangling and mounting anxieties from a possible federal government shutdown gave rise to fears that the U.S. economy could be careening into recession.
The previous week’s steep selloff resumed, gathering momentum as the session progressed, with all three major US indexes suffering sharp declines.
The S&P 500 had its biggest one-day drop since December 18 and the tech-loaded Nasdaq slid 4.0%, its biggest single-day percentage drop since September 2022.
The S&P 500, coming off of its biggest weekly percentage drop since September, is 8.6% below its record closing high reached less than a month ago.
On Thursday, the tech-loaded Nasdaq dipped more than 10% below its record closing high touched on December 19, confirming that it has been in a correction since then.
The bellwether S&P 500 closed below its 200-day moving average, a closely watched support level, for the first time since November 2023.
“It’s a material drop for one day but we’re seeing the normal sort of drawdown that you see in an upmarket,” said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management in Minneapolis. “Concerns are mounting and investors are moving to the sidelines, but we haven’t seen growth worries manifest in data yet.”
On Sunday, Trump declined to comment on the negative market reaction to his on-again, off-again tariff actions against the biggest U.S. trading partners, and whether anxieties related to his erratic policy shifts could nudge a softening economy into recession.
HSBC downgraded US stocks, citing uncertainty around tariffs.
But a Reuters poll of economists reflected the growing risks of recession for the United States, Canada and Mexico.
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Tech stocks are under pressure from a stronger Japanese yen and a spike in sovereign bond yields, as investors unwind yen carry trades on expectations of an upcoming interest rate hike in Japan.
The carry trades involve borrowing yen at a low cost to invest in other currencies and assets offering higher yields, and that unwinding is at least partially responsible for the selloff in tech stocks such as the “Magnificent 7” group of artificial intelligence-related megacaps.
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