Wall Street ends sharply lower on US recession fears

Bengaluru — US stocks plunged on Monday as relentless tariff wrangling and mounting anxieties from a possible federal government shutdown gave rise to fears that the US economy could be heading towards a recession.

The previous week’s steep sell-off resumed, gathering momentum as the session progressed, with all three major US indices suffering sharp declines.

On Thursday, the tech-loaded index dipped more than 10% below its record closing high, confirming that it entered a correction when it touched that high on December 19.

The bellwether S&P 500 closed below its 200-day moving average, a closely watched support level, for the first time since November 2023.

“It’s a material drop for one day but we’re seeing the normal sort of drawdown that you see in an upmarket,” said Tom Hainlin, national investment strategist at US Bank Wealth Management in Minneapolis. “Concerns are mounting and investors are moving to the sidelines, but we haven’t seen growth worries manifest in data yet.”

On Sunday, Trump declined to comment on the negative market reaction to his on-again, off-again tariff actions against the biggest US trading partners, and whether anxieties related to his erratic policy shifts could nudge a softening economy into recession.

HSBC downgraded US stocks, citing uncertainty on tariffs. But a Reuters poll of economists reflected the growing risks of recession for the US, Canada and Mexico.

Tech stocks are under pressure from a stronger Japanese yen and a spike in sovereign bond yields, as investors unwind yen carry trades on expectations of an upcoming interest rate hike in Japan.

The carry trades involve borrowing yen at a low cost to invest in other currencies and assets offering higher yields, and that unwinding is at least partially responsible for the sell-off in tech stocks such as the “Magnificent 7" group of artificial intelligence-related mega caps.

“If you want to know what’s going on with the US market, stop paying attention to tariffs and start paying attention to Japanese government bond yields,” said Thomas Hayes, chair at Great Hill Capital in New York. “The carry trade is unwinding, and all that hot money was in Mag 7. So that’s why tech is down.”

Adding instability to the mix, legislators on Capitol Hill are scrambling to pass a spending bill to avert a government shutdown.

China’s retaliatory tariffs on some US imports took effect on Monday, while US tariffs on certain base metals are expected later in the week.

The S&P 500 lost 155.21 points, or 2.69%, to end at 5,614.99 points, while the Nasdaq Composite lost 726.01 points, or 3.99%, to 17,470.21. The Dow Jones Industrial Average fell 890.63 points, or 2.08%, to 41,911.09.

Tesla shares plunged as the electric carmaker’s lustre dimmed in the wake of billionaire CEO Elon Musk’s department of government efficiency firings and protests arising from his support of far-right political parties in Europe.

Shares of Coinbase and Microstrategy slid, tracking bitcoin weakness.

Reuters