U.S. and Canadian stocks fell sharply Monday after Donald Trump said tariffs he had earlier announced on Canada and Mexico will take effect at the end of the night, dashing investors’ hopes that the U.S. President would choose a less painful path for global trade. It was the biggest daily percentage drop this year for both the S&P/TSX Composite and S&P 500 benchmarks.
“Markets were looking for another 11th hour deal to further delay tariffs, but aren’t going to get one this time,” said Jamie Cox, managing partner at Harris Financial Group. “The threat of tariffs has run its course for now, so the next phase is to endure them. Markets have to price that reality, and those numbers are painted red.”
The Canadian dollar (CADUSD) also fell sharply on the Trump comments, losing about half a cent to below 69 cents U.S. Bond yields in both countries fell, with traders significantly raising their bets that the Bank of Canada will cut rates at its next policy meeting to combat the dampening effect tariffs will have on the economy. Swaps markets as of late afternoon were pricing in 75% odds of a quarter-point rate cut on March 12, up from 50% odds prior to Trump’s comments, according to LSEG data. Markets now believe there will be a total of three quarter point rate cuts over the course of this year.
“For Canada, this is clearly negative for the near-term outlook, and we’ve judged such action could cut 2025 growth by almost 2 percentage points,” Robert Kavcic, senior economist with BMO Capital Markets, said in a note. “Meantime, next week’s Bank of Canada meeting is also in play, as tariffs going through would likely prompt another rate cut, even if the BoC has been careful with their messaging on that front—the market certainly thinks so.”
Trump’s late afternoon tariff comments came during an already shaky session for stocks that saw investors absorbing another warning signal about the strength of the U.S. economy. An ISM survey showed manufacturing PMI slipped to 50.3 last month from 50.9 in January, while the forward-looking new orders index contracted to 48.6 in February from 55.1 in January. The dip in the PMI mirrored declines in other recent sentiment measures as Trump ratchets up tariffs on imported goods.
“I think it’s just more of a continuation of a string of bad economic news that tends to put a little bit of a dampener on the optimism that we saw from the fourth quarter earnings that were getting released, which were pretty good,” said James St. Aubin, chief investment officer at Ocean Park Asset Management in Santa Monica, California.
The S&P/TSX composite index ended down 391.88 points, or 1.54%, at 25,001.57, its lowest closing level since January 16 and its biggest decline since Dec. 18. Domestic economic data Monday wasn’t very uplifting either; manufacturing activity contracted for the first time in six months in February as an uncertain trade outlook led to firms turning the most pessimistic since the start of the COVID-19 pandemic.
The TSX energy sector tumbled 5.1%, with Cenovus Energy Inc down 7.7%.
The price of oil settled nearly 2% lower at US$68.37 a barrel on reports that OPEC+ will proceed with a planned oil output increase in April and worries that U.S. tariffs could hurt global economic growth and oil demand.
Technology in Toronto lost 3.4%, weighed by a decline of 12.9% for electronic equipment firm Celestica. Industrials lost 1.5% and the materials group, which includes metal mining shares, ended 1.2% lower.
On Wall Street, the Dow Jones Industrial Average fell 649.67 points, or 1.48%, to 43,191.24, the S&P 500 lost 104.78 points, or 1.76%, to 5,849.72 and the Nasdaq Composite lost 497.09 points, or 2.64%, to 18,350.19.
Energy and technology sectors led declines among the S&P 500’s 11 sectors, with most megacap growth sectors ending down including chip giant Nvidia - which is down 8.7%. Amazon closed down 3.4%.
Defensive sectors such as Real estate, healthcare, utilities and consumer staples finished higher.
Trump is also expected on Tuesday to raise fentanyl-related tariffs on Chinese imports to 20% from 10% currently, unless Beijing ends fentanyl trafficking into the U.S. U.S.-listed shares of Chinese companies fell, with Nio tumbling 8.6% and JD.com dropping nearly 4%.
Worries about sticky inflation have made the Federal Reserve more cautious on interest rate cuts, but this week’s employment and business activity data could change the central bank’s view. Traders have been betting on at least two interest rate cuts of 25 basis point each from the Fed by December, according to data compiled by LSEG.
Tesla erased early gains and ended down 2.84%. Morgan Stanley had reinstated the stock as “top pick” among U.S. autos.
Chipmaker Intel closed lower by 4%, erasing gains that came in early trade after a report that chip designers Nvidia and Broadcom were running manufacturing tests with the company.
Declining issues outnumbered advancers by a 1.91-to-1 ratio on the NYSE. There were 195 new highs and 316 new lows on the NYSE. The S&P 500 posted 57 new 52-week highs and 27 new lows while the Nasdaq Composite recorded 58 new highs and 453 new lows.
The CBOE Volatility Index, also known as Wall Street’s fear gauge, rose as high as 24.31 points, touching its highest since December 20.
Reuters, with reports from Darcy Keith of the Globe and Mail