US equity indexes faced a significant decline as tensions heightened in a trade conflict involving the US and its top three trading partners: Canada, China, and Mexico. The Nasdaq Composite experienced a downturn of 0.6%, closing at 18,246.9, while the S&P 500 saw a drop of 1.1% to reach 5,785.1, and the Dow Jones Industrial Average fell by 1.4% to settle at 42,570.6 as trading progressed on Tuesday.
This widespread decline affected all sectors as investors reacted to the unfolding trade dynamics. In a notable shift in the bond market, most US Treasury yields experienced a decrease, with the 2-year yield falling by 6.4 basis points, landing at 3.92%. The longer-term 10-year yield remained relatively stable, sitting at 4.18%.
These movements indicated investor trepidation as volatility rose. The CBOE's volatility index, known as the VIX or the fear gauge, registered a significant surge of 11%, climbing to 25.25, marking its highest level since mid-December. Such an increase typically signals growing concern among investors regarding future market stability and economic conditions. Additionally, West Texas Intermediate crude oil futures dropped by 1.7%, reaching $67.23 a barrel, the lowest seen since early December.
This decline further highlighted the ripple effects of the trade tensions on global commodities markets. The Trump administration's recent decision to impose 25% tariffs on imports from Canada and Mexico, coupled with a doubling of tariffs on goods from China to 20%, has sparked retaliatory measures from these trading partners.
Accordingly, Canada announced its intent to implement an initial set of retaliatory tariffs affecting $30 billion of US goods, with plans to escalate these levies to $155 billion in imports. China, in turn, has imposed levies ranging from 10% to 15% on US food and agricultural products while instituting export and investment restrictions affecting 25 US companies. In light of these developments, Mexican President Claudia Sheinbaum is anticipated to disclose her government’s strategic responses to the tariffs, although she has not yet provided specific details following her affirmation on Tuesday that action would be taken. In terms of corporate impacts, Best Buy has highlighted the potential for price increases due to uncertainties surrounding tariffs and has issued a full-year earnings outlook that falls short of Wall Street’s expectations.
As a consequence, its shares plummeted more than 14% intraday, making it the worst performer on the S&P 500 for the day..