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A stock market selloff accelerated on Tuesday as Wall Street realized President Donald Trump was not bluffing about 25% tariffs on Canada and Mexico.
The S&P 500 sank nearly 2%. It’s now down 0.8% since Election Day. The Dow dropped 711 points, or 1.7%. The Nasdaq Composite sank 2%. It’s on track to close in correction territory.
Wall Street seemed upbeat that Trump would backtrack on market unfriendly policies while moving forward on those the market liked including tax cuts and regulatory rollbacks. That sent stocks rallying in the wake of the election. Now that Trump is moving forward despite the market’s negative reaction, traders will need to adjust their assumptions for corporate earnings and the economy.
“Everybody has to accept the realization that the administration is willing to take some pain to sort of execute its strategy, and that pain could be something as bad as a 10% to 15% pullback in stocks,” Sevens Report Research’s Tom Essaye told Barron’s in a phone interview. “The market had bet in a very big way that this was all bluffing.”
Essaye points out that Trump didn’t relent on his trade war with China in 2018 until the market fell about 10%. In that way Trump is playing with house money since the S&P 500 was trading at about 6050 on Inauguration Day. He wouldn’t be surprised if stocks fall 10% from there until the White House reacts.
Asked during a Tuesday interview with Fox News about the stock market’s negative reaction to tariff plans, Treasury Secretary Scott Bessent signaled the White House isn’t focused on the stock market right now.
“Wall Street has done great,” Bessent said. “Wall Street can continue to do fine, but we have a focus on small business and consumers.”
