S&P 500 tumbles below 5,000 as trade war fears roil markets

[UNITED STATES] The S&P 500 fell abruptly on Tuesday, closing below 5,000 points for the first time in almost a year, after reversing a strong morning gain, as investor expectations waned for any impending US tariff delays or concessions ahead of a midnight deadline.

Following President Donald Trump's announcement of heavy worldwide tariffs against US trading partners late on Wednesday, the S&P 500 has lost US$5.83 trillion in market value, its sharpest four days of losses since the index was founded in 1950.

The sell-off has been exacerbated by a flight to safety, with investors piling into US Treasuries and gold. The yield on the 10-year Treasury note fell to 4.32%, its lowest level in over a month, while spot gold prices surged past $2,400 per ounce—a fresh all-time high—as traders sought havens amid the escalating trade tensions.

According to LSEG data, the index has fallen by more than 12% since the news, the largest percentage drop in four days since the Covid epidemic. The S&P had surged more than 4% earlier on Tuesday, with investors hoping that Trump would soften his stance or postpone a tariff deadline of Wednesday.

However, White House press secretary Karoline Leavitt stated on Tuesday afternoon that Trump expects tariffs to go into force, despite the fact that nearly 70 countries have reached out to begin negotiations to mitigate the impact of US trade policies.

Analysts note that the market’s initial optimism reflected a pattern seen in previous trade disputes, where last-minute negotiations often led to temporary reprieves. However, the lack of concessions this time has heightened fears of a prolonged economic standoff, with ripple effects across supply chains and corporate earnings.

Market participants "were optimistic this morning that we would get some sort of sign that we're moving closer to a deal or a compromise with some of these bigger countries, or that there would be a delay coming given that so many people wanted to negotiate," said Lindsey Bell, chief market strategist at Clearnomics in New York.

"That doesn't seem to necessarily be the case as we are quickly approaching the midnight deadline and investors are losing confidence."

The White House announced on Tuesday afternoon that 104% tariffs on China would go into force on Wednesday. This comes after China had stated that it will never accept Trump's threat to increase taxes on Chinese imports to more than 100%.

The escalating rhetoric between Washington and Beijing has also weighed on Asian markets, with Hong Kong’s Hang Seng Index and China’s CSI 300 both dropping more than 2% in early Wednesday trading. European futures, meanwhile, pointed to further declines, signaling that the global sell-off is far from contained.

And United States Trade Representative Jamieson Greer warned on Tuesday that exemptions from global tariffs are unlikely in the immediate future.

"People wanted to be optimistic and eventually realized they didn't have a good reason," Melissa Brown, managing director, investment decision research at SimCorp.

"Earnings are going to start to be reported in the next few days. Even if earnings in the first quarter aren't down badly, we're going to see a lot of language from companies about the expected impact from the tariffs."

Quarterly earnings season will kick off later this week, with JPMorgan, Morgan Stanley, and Wells Fargo set to report on Friday.

The financial sector, in particular, is under scrutiny as banks grapple with the dual pressures of tighter lending conditions and potential loan defaults if trade disruptions slow economic activity. Analysts warn that guidance from major lenders could further dampen market sentiment if they signal caution for the rest of the year.

The S&P 500 drew closer to confirming a bear market, closing nearly 19% lower than its record level on February 19. A bear would be 20% down. The benchmark fell 79.48 points, or 1.57%, to settle at 4,982.77 on Tuesday. The last time it closed below 5,000 was on April 19, last year. The Dow Jones Industrial Average sank 320.01 points, or 0.84%, to settle at 37,645.59, while the Nasdaq Composite dropped 335.35 points, or 2.15%, to 15,267.91.

After plunging as low as 36.48 points earlier in the day, the CBOE Volatility Index—known as Wall Street's 'fear gauge'—recovered to close at 52.33 points, its highest closing level since March 2020, in its fourth straight day of gains.

Concerns that harsh US tariffs will drive up inflation and stifle global development have led some to predict that the Federal Reserve may decrease interest rates. However, San Francisco Federal Reserve Bank president Mary Daly stated on Tuesday afternoon that with the economy strong and the impact of the Trump administration's new policies unclear, the central bank should not rush to adjust interest rates.

The Fed’s cautious stance has added another layer of uncertainty, with traders now pricing in just a 35% chance of a rate cut by September, down from over 60% a week ago, according to CME Group’s FedWatch Tool. This shift reflects growing concerns that stubborn inflation and trade-driven supply shocks could keep monetary policy restrictive for longer.

Individual stocks rose 5.4% for UnitedHealth Group and 10.7% for Humana after the US announced a 5.06% rise in payment rates to private insurers for 2026 Medicare Advantage health plans.

On the NYSE, declining issues outnumbered advancers 3.03 to 1, with 17 new highs and 1,132 new lows. On the Nasdaq, 1,002 equities increased and 3,492 fell, with falling issues outnumbering advancers by a 3.49-to-1 ratio.

The S&P 500 had no new 52-week highs and 109 new lows, while the Nasdaq Composite had 17 new highs and 568 new lows. On US exchanges, 23.45 billion shares were traded, far more than the 17.35 billion average over the previous 20 sessions but lower than Monday's record 29.45 billion deals.