Wall Street stocks drop as investors fret over US economic slowdown

Stay informed with free updates

Simply sign up to the Equities myFT Digest — delivered directly to your inbox.

Wall Street stocks fell on Monday, deepening the recent sell-off triggered by investor concerns over the impact of President Donald Trump’s policies on the US economy.

The S&P 500 index tumbled 2.1 per cent, after falling 3.1 per cent last week in its worst weekly performance in six months, as big US banks ditched their previous bullish forecasts for stocks this year.

The Nasdaq Composite, which has been hit by a sell-off in big tech stocks in recent weeks, was down 3.8 per cent, dragged down by a fall of nearly 9 per cent for Tesla.

The carmaker’s shares surged following Trump’s election victory in November but have now given up all of those gains, losing more than 50 per cent of their value since their December high.

The latest falls, which also dragged down markets in Europe and Asia, came after the president on Sunday declined to rule out a recession or a rise in inflation as he dismissed business concerns over lack of clarity on his tariff plans.

Markets were being driven by “concerns about a growth scare or stagflation tied to rapidly changing Washington policy,” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management.

US Treasuries rallied on Monday, as investors sought safe haven assets. The 10-year yield, which falls as prices rise, was down 0.11 percentage points at 4.21 per cent.

The Vix index, known as Wall Street’s fear gauge, climbed to 27, the highest level since mid-December.

Investors are concerned that Trump’s on-off trade war is hurting the US economy, with Friday’s disappointing jobs numbers the latest in a run of weak data.

Retaliatory tariffs from China on about $22bn of US goods, including agricultural exports, came in to effect on Monday.

Over the weekend, Treasury secretary Scott Bessent provided little in the way of reassurance to worried investors as he acknowledged signs of US economic weakness. “Could we be seeing that this economy that we inherited starting to roll a bit? Sure,” he told CNBC.

Trump and Bessent seem to be prepared for “some pain to reorientate the economy”, said Deutsche Bank’s Jim Reid. “Taken at face value, these quotes suggests that their pain level is higher than most would’ve believed a few weeks ago.”

The equity market falls of recent weeks mark a sharp reversal from the mood late last year and earlier this year, when hopes of deregulation and tax cuts under Trump fuelled a market rally.

Instead, duties on goods from trading partners such as Canada, Mexico, China and the EU have led investors to rein in their bets and driven many into cutting risk.

The S&P could drop almost 20 per cent from its current level if “growth falls off more significantly and recession becomes likely,” said Morgan Stanley’s chief US equity strategist Michael Wilson in a note to clients on Monday. “We are not there, but things can change quickly.”

JPMorgan believes the index could fall as low as 5,200 — a near-10 per cent drop from current levels — due to “trade uncertainty”, while analysts at Citi believe the fallout from Trump policies can push the S&P down to 5,500 points. In December, an average of 10 global banks expected the index to climb roughly 10 per cent in 2025 to about 6,550 points.

“The US exceptionalism trade has been experiencing turbulence over the last weeks,” said Dubravko Lakos-Bujas, a strategist at JPMorgan, adding that policy uncertainty has risen sharply at a time of a “budding growth scare” and “crowded investor positioning”.

In Europe, where shares have outperformed the US this year, the Stoxx Europe 600 index was down 1.4 per cent, dragged down by banks and technology shares.

Germany’s Dax, which hit a string of record highs last week after the country agreed a historic spending package, fell 2 per cent. 

Chinese consumer prices fell in February for the first time in 13 months, in the latest sign of weakness for the world’s second-largest economy. The CSI 300 index closed down 0.4 per cent, while the Hang Seng index dropped 1.9 per cent, although it is still up around 19 per cent this year.

Additional reporting by Ian Smith