Stocks crater as the trade war investors doubted would ever happen is here now

A relentless breakdown in momentum stocks plus tariff threats that finally became real are a toxic combination for the US stock market.

The S&P 500 suffered its biggest loss of the year on Monday after President Donald Trump said 25% tariffs on imports from Mexico and Canada, as well as a doubling of levies on Chinese imports to 20%, will go into effect tomorrow.

A basket of stocks highlighted by Goldman Sachs as particularly vulnerable to tariffs tumbled 3%, which eliminates all their gains since the US election. It’s the worst one-day loss for the group since the Federal Reserve warned in its December meeting about upside risks to inflation following Trump’s election victory.

General Motors, perhaps the company most impacted by these levies, fell nearly 3% intraday following the affirmation of these tariffs shortly before 3 p.m. ET, deepening its daily loss.

Among investors, there was little consensus as to whether or not these tariffs would be enacted, per this survey from 22V Research at the end of last week:

By and large, markets had not been reacting too much to the chatter over trade barriers. Tariff-sensitive stocks had been (and still are!) handily outperforming shares of companies deemed insulated from levies since the November 5 election. As such, there’s plenty of scope for this theme to assert a larger role in driving price action going forward.

The assumptions investors had made as to why disruptive trade measures wouldn’t be high on the list of policy priorities for Trump 2.0 are quickly being revisited.

Trump 1.0 was carrots first, sticks second. Trump 2.0, however...

“The sequencing is a challenge as the administration is beginning with the hits to growth and confidence, rather than cementing a higher floor first, the opposite of the approach in the first Trump administration which began with tax cuts and deregulation,” wrote Peter Williams, strategist at 22V Research.