MW Stocks kick off March with biggest drop in months as Trump tariffs rattle market

By Joseph Adinolfi

More weak economic data also contributes to investors' growing sense of unease

U.S. stocks endured another serious setback on Monday as what one trader described as a tariff "tape bomb" from President Donald Trump caused the S&P 500 to tally its biggest daily drop in months.

After a rocky month that saw the Nasdaq Composite COMP fall sharply from its January highs, the selling pressure that had weighed on stocks in February only seemed to accelerate as March trading got underway.

For the S&P 500, Monday marked the second-worst first trading day of March on record, according to Ryan Detrick, chief market strategist at Carson Group. Only the first day of trading in March 2009 was worse, he said.

The tech-heavy Nasdaq fell by just over 2.6% to 18,350.19, closing at its lowest level since Nov. 4, Dow Jones Market Data showed. Members of the "Magnificent Seven" cohort of megacap stocks were all lower, led by a nearly 10% drop in shares of Nvidia Corp. $(NVDA)$

The S&P 500 SPX, meanwhile, fell 1.8% to 5,849.72, logging its worst session since Dec. 18, when the Federal Reserve rattled investors by affirming that it would be in no rush to continue cutting interest rates in 2025. Meanwhile, the Dow Jones Industrial Average DJIA shed 649.67 points, or 1.5%, to 43,191.24, its worst showing since Feb. 21, according to Dow Jones data.

Small- and mid-cap stocks also took a beating, with the small-cap Russell 2,000 RUT falling 2.8%, to 2,102.23. It was the only major U.S. stock-market gauge that underperformed the Nasdaq.

The selling started slowly enough. Stocks opened in the green, but investors were quickly put off by the latest reading from the Institute for Supply Management's gauge of manufacturing activity. While the headline number came in modestly positive for February, the prices-paid component of the ISM manufacturing index surged to a 33-month high of 62.4%. At the same time, the sub-component tracking new orders sank below 50%, hinting at tough times ahead.

It was the latest economic data point to help shake investors' faith in the economy, following disappointing readings on consumer sentiment and services-sector activity published over the past couple of weeks.

But the bulk of the market's slide came in the afternoon, after Trump said during a press briefing that there was "no room left" to further delay 25% tariffs on Canada and Mexico. Some, including futures trader Adam Mancini, described the comment as another tariff "tape bomb."

Trump had first signed an order to implement the tariffs last month, but decided to delay after securing concessions related to border security from the leaders of both countries.

Now, it appears those levies will take effect Tuesday. Additionally, the White House said Trump had signed an order to add an additional 10% tariff on imports from China, on top of a 10% tax imposed last month.

"The immediacy of the price reaction shows you just how uncertain the consensus is on all of the tariff-related issues," said Jordan Rizzuto, chief investment officer of GammaRoad Capital Partners, during an interview with MarketWatch.

"We've heard the back-and-forth about whether this is a negotiating tactic or not. But the price behavior over the past several sessions is now really indicative of a market that is vulnerable to correction," he added.

As if all this wasn't enough, Trump also touted levies on "external" agricultural products that he said would take effect on April 2, in a post on Truth Social. The phrasing of the post left some unclear as to whether Trump was referencing import tariffs, or fees on U.S. agricultural exports.

Adding to investors' sense of unease, the latest reading on the Atlanta Fed's GDPNow forecast showed the U.S. was tracking for GDP growth of -2.8% during the first quarter.

Recently, fears that the U.S. economy might be sliding into "stagflation" - an environment characterized by low or negative growth and stubborn inflation - have contributed to the market's woes, Rizzuto said.

As stocks have slumped over the past week or so, speculation has intensified about what it might take for Trump to backtrack and bail out investors.

But Stuart Kaiser, head of equity trading at Citigroup, said the level of the "Trump put" was likely lower than most investors might expect.

"Our thinking is that the current administration is trying to address long-term budget, deficit and trade imbalances that they believe are high priority," Kaiser told MarketWatch via email.

"If that is the case, we think they will be more tolerant to short-term market sell-offs if they are in the interest of their longer-term structural goals."

Bonds rallied on Monday, with Treasury yields continuing their recent retreat. Meanwhile, the price of bitcoin sank, reversing gains that had followed a Trump Truth Social post on Sunday which suggested that the strategic cryptocurrency reserve he had promised during the campaign was one step closer to becoming a reality.

The CoinDesk Bitcoin Price Index (BTCUSD) fell nearly 9% to $85,936, the largest percentage-point decrease for the pioneering cryptocurrency since Aug. 5, Dow Jones data showed.

-Joseph Adinolfi

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(END) Dow Jones Newswires

March 03, 2025 17:02 ET (22:02 GMT)

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