Explained: Trade tensions, shutdown fears rattle US markets; what's next for investors?

The S&P 500 has now declined by over 8% from its February 19 all-time high, while the Nasdaq Composite officially entered correction territory after plunging more than 10% from its December peak.

US stock markets on Monday experienced a significant downturn as persistent trade disputes and looming concerns over a potential federal government shutdown rattled investor confidence. The selloff, which began last week, intensified throughout the session, leading to substantial losses across major indices.

The S&P 500 has now declined by over 8% from its February 19 all-time high, while the Nasdaq Composite officially entered correction territory after plunging more than 10% from its December peak. The mounting economic uncertainty, coupled with fears of a potential recession and escalating trade tensions, has erased trillions in market value.

Factors driving market selloff

A combination of high stock valuations, economic instability due to shifting trade policies, and disappointing corporate earnings has fueled the latest downturn. Companies such as Tesla witnessed a sharp drop in market value, losing over $125 billion in a single day. Meanwhile, Delta Air Lines revised its profit forecasts downward, citing economic uncertainty as a primary concern. Investors remain on edge, closely monitoring upcoming inflation reports, Federal Reserve interest rate decisions, and potential government interventions to stabilize the economy.

Technology and airline stocks among biggest losers

Technology stocks have borne the brunt of the selloff, with Tesla leading the decline, followed by Apple and Nvidia, which both suffered losses of approximately 5%. The S&P 500's technology sector overall dropped 4.3%. Additionally, Delta Air Lines' stock plummeted 14% after the airline slashed its first-quarter profit estimates by half, further adding to investor concerns.

Recession concerns weigh on investor sentiment

Market analysts and investors are increasingly worried about the possibility of an economic downturn. In an interview over the weekend, US President Donald Trump described the current economic climate as "a period of transition" and did not dismiss the likelihood of a recession. Speaking on Fox News' "Sunday Morning Futures," Trump stated, "I hate to predict things like that. There is a period of transition because what we’re doing is very big." Meanwhile, investment strategist Ross Mayfield from Baird noted that the administration seems "more accepting" of the potential for market declines as part of their broader economic strategy.

White House attempts to reassure markets

Despite the ongoing volatility, the White House has sought to downplay recession fears, asserting that the economy remains fundamentally strong. Kevin Hassett, head of the National Economic Council, emphasized that while there are "some blips in the data" this quarter, the administration remains bullish on economic growth. He also suggested that tariff-related uncertainty would soon be resolved, pointing to tax cuts as a catalyst for increased investment and wage growth. However, skepticism remains high among investors, with market fluctuations reflecting broader concerns about long-term stability.

What lies ahead for investors?

Market participants are closely watching several key economic indicators in the coming weeks, including inflation reports, Federal Reserve interest rate policies, and potential government stimulus measures. Any further decline in investor confidence could push markets into deeper correction territory. Investment analyst Dan Coatsworth of AJ Bell commented, "Many people have been worried about elevated valuations among US equities for some time and looking for the catalyst for a market correction."