The world’s most widely followed stock-market benchmark slid into a correction on Thursday, a drop that underscores how the two-year-long bull market is running out of steam in the early days of the Trump administration.
The move stems from investors’ growing pessimism about the whipsawing policy pronouncements from Washington over the past few weeks. On-again, off-again tariffs and mass layoffs of federal workers have fomented unease on Wall Street.
On Thursday, the S&P 500 fell 1.4 percent. After weeks of selling, the index is now down 10.1 percent from a peak that it reached less than one month ago and is in a correction — a Wall Street term for when an index falls 10 percent or more from its peak, and a line in the sand for investors worried about a sell-off gathering steam.
Other major indexes, including the Russell 2000 and the tech-heavy Nasdaq Composite, had already fallen into correction. On Thursday, the Nasdaq fell 2 percent, while the Russell 2000 index of smaller companies, which tend to be more exposed to the ebb and flow of the economy, was 1.6 percent lower.
The deeper worry among investors is that uncertainty around the effects of Mr. Trump’s policies is causing consumers to spend less and discouraging businesses from investing. That reticence could, in turn, drive the economy into a downturn, forcing investors to reassess company valuations.
“I think what markets are telling us is that they are very concerned about the potential for a recession,” said Kristina Hooper, chief global market strategist at Invesco. “That is certainly not what markets expected going into 2025.”
This is the 13th correction in the S&P 500 since the turn of the century, according to data from Yardeni Research. Of the 12 previous downturns, four turned into bear markets, defined as a more severe decline of at least 20 percent.
So far, the administration has brushed off the market turmoil. Scott Bessent, secretary of the Treasury, said on Thursday that he was focused on the “real economy,” downplaying signals sent by business leaders and investors. “I’m not concerned about a little bit of volatility over three weeks,” he said.
As stocks have been falling in recent weeks, the Trump administration has emphasized that its economic policies are designed to promote job growth over the long term, but could cause some market turmoil in the short term.
Seema Shah, chief global strategist at Principal Asset Management, said the economy had already begun to be “negatively impacted.”
The pain has been acutely felt among the behemoth tech companies that drove the market higher in recent years, but their once rallying share prices have since reversed course. The tech-heavy Nasdaq Composite index has fallen roughly 14 percent from its peak in December.
The sell-off has also spread to other corners of the market, signaling broader concerns than simply a re-pricing of highly valued technology companies. The Russell 2000 has fallen 18 percent from its peak in November, close to a fully fledged bear market.
Sectors of the stock market exposed to tariffs, like food producers, have slumped. The effects are being felt on other companies, like retailers and airlines, that are worried about a pullback among consumers should the economy enter a downturn. On Thursday, the low-cost retailer Dollar General said customer traffic fell in its most recent quarter, and the company predicted continued financial pressure. Delta Air Lines cut its financial forecast this week for the first three months of the year, citing less demand for domestic travel.
“So far in 2025, the U.S. economy has only faced headwinds,” Ms. Shah said.
On Thursday, Mr. Trump threatened to impose 200 percent tariffs on European wine and champagne, one day after the European Union announced retaliatory tariffs on imports of U.S. whiskey and several other American products. The president has already added tariffs on steel and aluminum imports, and a wide swath of products from China.
And when he was asked by reporters if he might offer a reprieve to Canada — one of the United States’ largest trading partners — he was adamant that he wouldn’t.
“I’m sorry, we have to do this,” Mr. Trump said.
The constantly moving goal posts have left investors so rattled that even recent good news about the economy hasn’t had a calming effect. On Thursday, a report on weekly unemployment claims came in lower than expected. On Wednesday, a better-than-expected reading of the Consumer Price Index had briefly helped bolster stocks.
Investors are worried that tariffs, once in full effect, will push prices higher — hurting business and consumers. Mr. Trump’s immigration policies and firings of federal employees through the so-called Department of Government Efficiency are also looming in the backdrop, as is the threat of an impending government shutdown.
“The outlook for inflation depends more on tariffs, deportations and DOGE than the backward-looking data releases right now,” Bill Adams, chief economist for Comerica Bank, said on Thursday.
