In February and March 2025, the global stock market experienced a sharp decline, prompting concerns among investors and analysts. Stock markets across the world have witnessed a roller-coaster ride over the last few weeks as investors grappled with uncertainty around US President Donald Trump’s announcement and rollback of tariffs. However, the impact is more profound on US equities than European and Chinese. Several interconnected factors have contributed to this downturn:
1. Escalation of trade tensions
The US. administration’s aggressive trade policies have been a primary catalyst for market volatility. On March 3, 2025, President Trump announced an increase in tariffs on Chinese imports from 10% to 20%, effective immediately. Further, he announced 25% sweeping tariffs on Canada and Mexico as well that were implemented on March 4, 2025, but few days later Donald Trump said some of the tariffs imposed on Mexican and Canadian goods imported to the United States will be suspended until next month (details below in the table). These unpredictable moves led to a sharp sell-off in U.S. equities, with the S&P 500 index falling by 1.8% and the Nasdaq-100 index by 2.6% on the same day. By March 6, the S&P 500 had erased nearly all gains accumulated since November 2024. The equity markets’ drop continued after March 12 as of the time of writing this article.
The following table provides a summary of the current state of tariffs as of 12 March 2025:
| Country | Tariff Details |
| China | 20% Tariff: An additional 10% tariff is imposed on all goods originating from China and Hong Kong, effective March 4, 2025. This is an increase from the previous 10% tariff implemented in February 2025. There is still room to raise them further if needed, according to US Administration. China announced a full-scale retaliation, a tit for tat moves. |
| Canada and Mexico | 25% Tariff: A 25% tariff applies to all goods imported from Canada, excluding energy resources. 10% Tariff on Energy: A 10% tariff is levied specifically on Canadian energy imports, including oil, natural gas, and electricity. Further breakdown of these tariffs: 25% tariffs on goods that do not satisfy U.S.-Mexico-Canada Agreement (USMCA) rules of origin.A lower 10% tariff on those energy products imported from Canada that fall outside the USMCA preference.A lower 10% tariff on any potash imported from Canada and Mexico that falls outside the USMCA preference.No tariffs on those goods from Canada and Mexico that claim and qualify for USMCA preference. |
| Europe | 25% tariffs on Steel and Aluminium to the US. However, Trump has repeatedly said there could be 25% tariffs on European imports on a broader level, beyond steel and aluminium. Timing and breakdown of those tariffs is not a known yet. The European Union said on Wednesday, 12 March it would impose counter-tariffs on 26 billion euros ($28.33 billion) worth of U.S. goods starting in April in response to the duties. |
| Australia | 25% tariffs on Steel and Aluminium to the US. Australian Prime Minister Anthony Albanese said that Trump’s move to impose the tariffs was “entirely unjustified.” |
| India | 25% tariffs on Steel and Aluminium to the US. There are no recent reports of new U.S. tariffs on other imports. However, there are news that United States will impose reciprocal tariffs on India. |
| Globally | 25% tariffs on all imports of the steel and aluminium to the US, effective from Wednesday 12 March 2025. |
The Economist characterised these tariffs as “aggressive and erratic”, suggesting they could inflict lasting damage both domestically and internationally. Analysts have drawn parallels to previous trade conflicts, noting that the current situation may prove more costly. Diane Swonk, chief economist at KPMG, highlighted the unprecedented nature of imposing “reciprocal tariffs” on multiple countries simultaneously, warning of potential global retaliation. In his recent interview with CBS, Warren Buffett briefly touched on tariffs and called them “an act of war to some degree,” saying that the US has had a lot of experience with tariffs and that over time they become a tax on goods.
2. Deteriorating economic indicators
Recent economic data has painted a concerning picture of the US economy:
- Consumer sentiment: The University of Michigan’s consumer sentiment index plummeted nearly 10% in February to 64.7, its lowest level since November 2023. This decline reflects heightened inflation concerns linked to potential tariffs.
- Inflation expectations: Long-term inflation expectations have surged to levels not seen since 1995, unsettling both investors and policymakers. Elevated inflation can erode purchasing power and corporate profits, leading to reduced consumer spending and business investment. Moreover, sticky inflation is not what the Fed likes as it is on the path to reduce interest rates, the journey they started in the second half of 2024.
- Housing market: Existing home sales fell more than anticipated, signalling potential weaknesses in the housing sector, a critical component of the US economy.
3. Vulnerabilities in the US technology sector
The technology sector, which had been a significant driver of market growth, faced substantial setbacks:
- Nasdaq Decline: The Nasdaq 100 experienced a 3.8% drop on a single day on March 10, marking its largest one-day decline since October 2022. At its lowest point, the index had shed over $1 trillion in market value. According to many experts, US markets were trading at high valuations.
- Tesla’s Plummet: Tesla’s shares plunged 15%, the most significant single-day drop since September 2020, amid concerns over declining sales and CEO Elon Musk’s divided focus.
- China’s DeepSeek AI: The release of relatively low cost DeepSeek AI, a close competitor to Open AI’s ChatGPT, also contributed to the US stocks’ sell-off as investors started questioning the heavy Capex spending by US tech giants in a push for AI dominance. After DeepSeek AI, the likes of Ali Baba also announced their plans to launch their own version of AI models and so committed a significant Capex for that. This also triggered a rotation of capital from US equities to China as the latter is perceived to be undervalued.
4. Investor sentiment and market dynamics
The confluence of trade tensions, deteriorating economic indicators, and sector-specific challenges has eroded investor confidence:
- Flight to safety: Investors have been reallocating assets toward traditionally defensive sectors, such as consumer staples, utilities, and healthcare. This rotation indicates a cautious outlook, with major funds like Warren Buffett’s Berkshire Hathaway holding record levels of cash.
- Recession fears: President Trump’s refusal to dismiss the possibility of a recession has intensified market anxieties. Major banks have adjusted their GDP forecasts downward, and City downgraded US equities to neutral, citing adverse trade policies and potential inflationary pressures.
- US exceptionalism to potential recession: The US exceptionalism story is on pause. The recent financial markets’ dramatic moves significantly driven by the game of narratives as talk of US exceptionalism took a sharp turn to potential recession in just a matter of weeks. US policy uncertainty resulting in a lot of chaos and confusion is playing a key role in recent market jitters.
Is this market sell-off a warning sign or an opportunity?
Not everyone is pessimistic after seeing a series of market falls in recent days – such investors and experts view market corrections as an opportunity for long-term investors. Queens’ College, Cambridge president Mohamed El-Erian says in an interview with Bloomberg, “though recession risks have risen, it is not his “baseline.” “My probability of US recession has gone up from 10% to 25 to 30%. So, it’s not the baseline… The reason why it’s not the baseline has to do with the structural strengths of the US economy. It also has to do with what we’ve been promised down the road in terms of deregulation, tax cuts, and the reality of low energy prices”. According to Ed Yardeni, the President of Yardeni Research, “this market correction is not a tragedy, rather it is a buying opportunity”.The stock market decline in February and March 2025 result from a complex interplay of aggressive trade policies, unfavourable economic data, vulnerabilities in key sectors, and shifting investor sentiment. These factors have collectively heightened uncertainty, confusion, and volatility in global financial markets, thus pushing investors to remain risk-off until the dust settles. However, long-term investors may view this market correction as a buying opportunity, like many in the past.
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Disclaimer
This article is for information only. Please do not act based on anything you might read in this article. Past performance is not a reliable indicator of current or future returns. This article contains general information only and does not consider individual objectives, taxation position or financial needs. Nor does this constitute a recommendation of the suitability of any investment strategy for a particular investor. It is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy to any person in any jurisdiction in which such an offer or solicitation is not authorised or to any person to whom it would be unlawful to market such an offer or solicitation.