Wall Street continued its downward spiral on Tuesday as President Donald Trump announced a fresh escalation in his trade war with Canada. The stock market briefly dipped 10% below its all-time high before stabilizing, signaling growing investor concerns about the economic impact of tariffs.

Markets in Turmoil Over Trump’s Tariff Hike

The S&P 500 fell 1.4% in afternoon trading after Trump doubled tariffs on Canadian steel and aluminum to 50%, citing retaliation for policy moves by a Canadian province. The Dow Jones Industrial Average dropped 678 points (1.6%), while the Nasdaq composite declined 1%.

With this latest plunge, the S&P 500 came dangerously close to a “correction”—a term used when the index falls 10% from its recent peak. The market has now seen wild swings of at least 1% in seven of the last eight trading sessions, reflecting uncertainty about how much economic damage Trump is willing to risk in his aggressive trade policies.

In a surprising statement, Trump suggested a radical solution to the tariff dispute:

“The only thing that makes sense is for Canada to become our cherished Fifty-First State. This would make all tariffs, and everything else, totally disappear.”

Economic Warnings Flashing Red

Beyond the direct impact of tariffs, the broader uncertainty surrounding trade policies is creating anxiety among businesses and consumers. Companies across multiple sectors are issuing warnings about declining confidence and slowing demand.

Delta Air Lines reported a drop in consumer confidence, citing weaker demand for last-minute bookings. As a result, the airline slashed its revenue growth forecast for early 2025 from 7%-9% down to 3%-4%. Delta’s stock plunged 8.3%.

Southwest Airlines also reduced its revenue outlook, blaming lower government travel, California wildfires, and weakened consumer demand. However, its stock jumped 8.5% after announcing new fees for checked bags and loyalty program changes aimed at boosting revenue.

Oracle tumbled 5% after posting disappointing quarterly earnings, missing analysts’ expectations for both profit and revenue.

Big Tech Holds Firm Amid Sell-Off

Despite the market turmoil, Big Tech stocks—which have been heavily sold off in recent months—showed some resilience.

Tesla rose 1.6% after Trump publicly backed Elon Musk, saying he would buy a Tesla in support of “Elon’s baby”. The EV giant has been under pressure as Musk pushes for federal spending cuts, impacting Tesla’s business. Tesla’s stock is still down 44.1% in 2024.

Nvidia climbed 1.3%, though it remains down 19.3% for the year. The stock has struggled as investors reassess valuations following last year’s AI-driven rally.

A handful of Big Tech giants—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—were responsible for over 50% of the S&P 500’s gains last year. Analysts at Citi remain optimistic about the long-term prospects of AI-driven stocks but caution that US market dominance may be on pause in the short term.

Global Markets and Economic Indicators

European and Asian stock markets mostly fell as global investors reacted to US volatility. However, China’s Shanghai Composite Index rose 0.4%, while Hong Kong markets remained flat as China’s National Congress announced new economic stimulus measures.

Bond markets showed stability, with the 10-year US Treasury yield edging up to 4.23% from 4.22%. This follows a sharp decline in yields in recent months as investors seek safer assets amid economic uncertainty.

A US job market report showed that employers advertised 7.7 million job openings in January, in line with expectations. While the labor market remains relatively strong, the long-term effects of tariffs and economic uncertainty could weigh on employment growth.

Market Volatility Set to Continue

As Trump ramps up trade tensions, investors are bracing for continued market swings and economic uncertainty. With businesses lowering revenue forecasts and Big Tech struggling to maintain momentum, the stock market’s short-term outlook remains shaky.

With Biden and Congress watching closely, the political and economic ramifications of Trump's trade war could shape market movements well into 2025.