On Thursday, the most widely recognized stock market index slipped into correction territory, signaling how the bull market that lasted a solid two years is starting to show signs of fatigue, especially as the Trump administration kicks off.
This shift is largely driven by investors feeling wary due to the unpredictable policy announcements from Washington in recent weeks. The back-and-forth over tariffs and significant layoffs of federal employees are stirring unease on Wall Street.
The S&P 500 took a 1.4% dive on Thursday. After a period of consistent selling, the index has fallen 10.1% from the peak it hit less than a month ago, officially marking a correction—a term Wall Street uses when an index drops by 10% or more from its high, a crucial indication for investors concerned about accelerated sell-offs.
Other key indexes, like the Russell 2000 and the tech-centric Nasdaq Composite, had already entered correction territory. On Thursday, the Nasdaq took a 2% hit, while the Russell 2000, known for its focus on smaller companies more vulnerable to economic swings, went down by 1.6%.
What’s really unsettling investors is the uncertainty over how President Trump’s policies might suppress consumer spending and deter business investments. This hesitance could propel the economy toward a downturn, prompting investors to reevaluate company valuations.
Kristina Hooper, who serves as the chief global market strategist at Invesco, noted, “Markets seem to convey significant concerns over the possibility of a recession. This wasn’t what the markets had anticipated as we approached 2025.”
Since the 2008-09 financial crisis, this is the 11th correction the S&P 500 has endured, according to Yardeni Research. Out of these, three downturns led to bear markets, more severe declines of at least 20%.
Despite the market turbulence, the Trump administration appears unfazed. Treasury Secretary Scott Bessent remarked on Thursday that his focus was on the “real economy,” minimizing the importance of the signals from business leaders and investors. “A little volatility over three weeks isn’t something I’m worried about,” he said.
While stocks have been on a downward trajectory recently, the administration maintains that its economic strategies are designed for long-term job growth, even if they cause short-term market disruptions.
Seema Shah, the chief global strategist at Principal Asset Management, highlighted that the economy is already feeling the negative effects.
The tech giants, once powering the market to new heights, are now experiencing a reversal, with the Nasdaq Composite sliding about 14% from its December peak.
The sell-off has also reached other areas of the market, hinting at wider worries than just the adjustments in tech company valuations. The Russell 2000 has dropped 18% from its November peak, nearing bear market conditions.
Stock sectors susceptible to tariffs, such as food production, are seeing declines. Other companies, like retailers and airlines, also face concerns about potential consumer pullbacks if the economy downshifts. Dollar General, a discount retailer, reported a decrease in customer traffic last quarter and expects ongoing financial strain. Delta Air Lines revised its financial outlook for the first quarter, pointing to a reduction in domestic travel demand.
“In 2025, the U.S. economy has encountered only headwinds thus far,” Shah stated.
President Trump’s latest threat to impose a 200% tariff on European wine and champagne came a day after the EU announced retaliatory tariffs on American whiskey and other U.S. products. New tariffs on steel, aluminum, and numerous goods from China have already been implemented.
When pressed about tariffs on Canada, a major U.S. trading partner, Trump was firm, refusing to give any leeway. “I’m sorry, we have to do this,” he insisted.
With the ever-changing policies, even positive economic news has offered little reassurance to investors. Although a recent unemployment report showed fewer claims than expected and a favorable Consumer Price Index reading momentarily lifted stocks, the apprehension remains.
Investors fear that tariffs, once fully enacted, will drive up prices, adversely affecting businesses and consumers alike. Meanwhile, Trump’s immigration policies and the firing of federal employees are looming issues, with the threat of a potential government shutdown adding to the tension.
Bill Adams, chief economist for Comerica Bank, commented, “The outlook for inflation hinges more on tariffs, deportations, and government efficiency measures than on the backward-looking data we’re seeing right now.”
