The S&P 500 fell 1.2 per cent, with more than 80 per cent of the stocks in the benchmark index closing lower. The Dow Jones Industrial Average slid 1.6 per cent.

The Nasdaq composite slipped 0.4 per cent. The tech-heavy index briefly reached a 10 per cent decline from its most recent closing high, which is what the market considers a correction, but gains for Nvidia, Microsoft and other tech heavyweights helped pare those losses.

Financial stocks were among the heaviest weights on the S&P 500 index. JPMorgan Chase fell 4 per cent and Bank of America lost 6.3 per cent.

Markets in Europe fell sharply, with Germany’s DAX falling 3.5 per cent as car makers suffered sharp losses. Stocks in Asia had more modest declines.

“The markets are having a tough time even setting expectations for what this trade war could look like,” said Ross Mayfield, investment strategy analyst at Baird. “This is clearly a level step higher than anything we saw during (Trump’s) first term.”

The market could soon face more twists in the tariff drama. President Donald Trump addresses a joint session of Congress tonight. After the closing bell, Commerce Secretary Howard Lutnick told Fox Business News that the US would likely meet Canada and Mexico “in the middle” on tariffs, with an announcement coming as soon as Wednesday.

The recent decline in US stocks has wiped out all of the markets’ gains since Trump’s election in November. That rally had been built largely on hopes for policies that would strengthen the US economy and businesses. Worries about tariffs raising consumer prices and reigniting inflation have been weighing on both the economy and Wall Street.

The tariffs are prompting warnings from retailers, including Target and Best Buy, as they report their latest financial results. Target fell 3 per cent despite beating Wall Street’s earnings forecasts, saying there will be “meaningful pressure” on its profits to start the year because of tariffs and other costs.

Best Buy plunged 13.3 per cent for the biggest drop among S&P 500 stocks after giving investors a weaker-than-expected earnings forecast and warning about tariff impacts.

“International trade is critically important to our business and industry,” said Best Buy CEO Corie Barry.

Barry said China and Mexico were the top two sources for products that Best Buy sells, and it also expects vendors to pass along tariff costs, which would make price increases for American consumers likely.

Concerns about profits follow a series of economic reports with worrisome signals that include US households becoming more pessimistic about inflation and pulling back on spending. Consumer spending has essentially driven US economic growth in the face of high interest rates.

Wall Street has been hoping that the Federal Reserve would continue lowering interest rates in 2025. The central bank has signaled more caution, though, partly because of uncertainty surrounding the economic impact of tariffs. The Fed is expected to hold rates steady at its upcoming meeting later in March.

The Fed raised interest rates to their highest level in two decades in order to tame inflation. It started cutting its benchmark rate in 2024 as the rate of inflation moved closer to its target of 2 per cent. But inflation remains stubbornly just above that target and tariffs threaten price increases that could fuel inflation.

In the bond market, Treasury yields were mixed. The yield on the 10-year Treasury rose to 4.20 per cent from 4.16 per cent late Monday. It’s still down sharply from last month, when it was approaching 4.80 per cent, as worries have grown about the strength of the U.S. economy.

“Because tariffs are in effect, and there’s no guarantee that they’re likely to be temporary, that’s filtering its way to the bond market and we’re seeing the threat of higher inflation eroding the value of the 10-year note,” said Sam Stovall, chief investment strategist at CFRA.

The yield on the 2-year Treasury held steady at 3.94%.

All told, the S&P 500 fell 71.57 points to 5778.15. The Dow dropped 670 points to 42,520.99, and the Nasdaq shed 65.03 points to 18,285.16.