The stock market resumed its slide on Thursday, as the White House clarified that Chinese imports would face a tariff of 145 percent, prompting renewed investor angst over an escalating trade war between the world’s two largest economies.
The S&P 500 fell 3.5 percent, a day after recording its best gain since 2008. The drop erased much of Wednesday’s 9.5 percent rise and showed that fears that tariffs could hamper economic growth were still very much alive.
Thursday’s drop brought a continuation of the chaotic trading conditions and sharp losses that have characterized the stock market since President Trump’s announcement last week of steep tariffs across the nation’s trading partners. As stocks slid again, the wild swings in government bonds caught the attention of policymakers who are watching to ensure that one of the most crucial financial markets in the world continues to function smoothly.
Investors had welcomed Mr. Trump’s 90-day reprieve on higher tariffs, and the market soared within minutes of the announcement on Wednesday. The pause applied to all countries except China, which investors had thought would face an import tax of 125 percent.
But stocks began to drop on Thursday morning as analysts noted that even with the tariff pause, countries still faced a new blanket 10 percent tariff — already much higher than before. Tariffs recently imposed on cars and auto parts, and steel and aluminum, would also remain in place. Then the White House clarified that the new 125 percent tariff on Chinese imports was on top of earlier 20 percent tariffs, taking the number to 145 percent.
“Despite the good news, policy uncertainty remains elevated and will act as a drag on the U.S. economy,” James Rossiter, the head of global macro strategy at TD Securities, wrote in a note. “Firms will struggle to plan.”
President Trump signaled an openness to negotiating with countries over the nearly across-the-board 10 percent tariff he had imposed. While describing it as a “base line” at a cabinet meeting on Thursday, he also seemed to say it could be subject to change. “It depends on what they’re adding,” he said.
Chief executives have begun to warn that uncertainty is challenging enough.
On Wednesday, Delta Air Lines said a lack of clarity about the economy prevented it from telling investors how much money it expected to make this year. Delta’s stock price tumbled more than 11 percent on Wednesday.
Economists also warned that the remaining tariffs on China would still have enormous repercussions for the American economy. Many public companies whose stocks and shares trade on the open market rely on imports from China. The clothing retailer Nike fell over 8 percent Thursday.
Wendong Zhang, an assistant professor of applied economics and policy at Cornell, pointed out that “many products that the U.S. imports are predominantly from China,” including 73 percent of smartphones, 78 percent of laptops, 87 percent of video game consoles and 77 percent of toys. “Resourcing from other countries will take time and result in much higher costs,” Mr. Zhang said in an interview on Wednesday.
Few corners of the stock market were spared. More than 80 percent of the stocks in the S&P 500 ended the day lower. The energy sector led declines as oil prices tumbled, another harbinger of slowing global growth. The U.S. dollar weakened 1.7 percent against a basket of currencies of its major trading partners, its worst day of the year so far.
CarMax tumbled 17 percent, among the worst performing stocks in the index, after the company said it had become a lot more challenging to forecast what was ahead.
“We are focused on growing the business, and we continue to make progress toward our long-term goals. However, we are removing the time frames associated with them given the potential impact of broader macro factors,” CarMax said in a statement as it reported quarterly results. Analysts expect that the 25 percent tariffs on imported cars that went into effect last week is likely to raise car prices, lower sales and cause other disruptions to the auto industry.
Rating agencies that score corporate debt based on how risky it is have begun to warn of rising defaults amid the economic fallout from tariffs. Measures of corporate borrowing costs have risen in recent days, a sign that lenders see more risk emerging for businesses.
The S&P 500 is again approaching a bear market, defined as a drop of more than 20 percent from its recent peak and a line in the sand for investors that marks a period of extreme pessimism.
The index has fallen 14.3 percent since its mid-February high. The tech-heavy Nasdaq Composite index and the Russell 2000 index of smaller companies have already dropped into a bear market.
Officials at the Federal Reserve are keeping close tabs on recent gyrations in financial markets, especially after a sell-off across U.S. government bonds earlier this week, which undermined their status as a place for investors to shield themselves during market storms.
Government bonds held steady on Thursday. The benchmark 10-year Treasury yield, which underpins borrowing across the economy, has risen from less than 4 percent on Friday to roughly 4.4 percent on Thursday.
Jeff Schmid, president of the Kansas City Fed, said the Fed was watching markets “by the minute” to “make sure that the transactions and liquidity keep flowing.” He added that the disruptions in Treasury markets this week had been “really instructive.”
Concerns have mounted that highly leveraged bets that seek to profit from the small difference in price between cash bonds and derivatives are exacerbating volatile markets. Such trades, popular among some hedge funds, have attracted the attention of regulators in the past for contributing to bouts of volatility.
Beth Hammack, who is now president of the Cleveland Fed after working at Goldman Sachs for decades, described U.S. markets as “strained but functioning” on Wednesday.
Wall Street’s slumped after major benchmarks in Asia and Europe ended Thursday sharply higher. In Asia, benchmark indexes rose more than 9 percent in Taiwan and Japan and 6 percent in South Korea. In Europe, the Stoxx Europe 600 index jumped more than 5 percent. The markets in Germany and France gained more than 5 percent.
The Chinese government has taken steps to stabilize its markets. State-owned companies announced on Tuesday that they were buying back some shares, a move that typically helps push stock prices higher. On Thursday, an influential state media outlet published a commentary saying it was a good time for the central bank to lower interest rates and take other steps that would support the economy.
Talmon Joseph Smith and Colby Smith contributed reporting.
