Why is the stock market down this week？

Key Takeaways

• On Monday (March 10), the US stocks fell sharply. The Nasdaq index, dominated by technology stocks, performed the worst, posting its biggest one-day drop since September 2022.
• David Kostin, Chief U.S. Equity Strategist, lowered his 2025 year-end S&P 500 target to 6,200 from 6,500 after Monday's stock market plunge.
• The recent stock market correction is jointly affected by multiple factors such as tariff policies, economic data, and corporate growth expectations.

Introduction

Recently, the stock market has experienced several major fluctuations, especially the sharp drop on March 10. Many investors have become anxious because of the shrinking of their assets.

In this article, I will conduct a comprehensive analysis of the factors behind this market correction to help you clearly understand the current situation of the market.

What's happening this week?

The US stock market started the new week with a decline. On Monday (March 10), the Nasdaq index plunged 4%, the biggest drop since September 2022, the Dow Jones Industrial Average fell 2%, and the S&P 500 fell 2.7%. The share prices of more than 500 stocks in the Russell 3000 index are now 50% lower compared to its 52-week high.

The sharp drop on Monday sparked negative market sentiment and triggered a market sell-off, further pressuring the market into a bearish trend.

The sharp sell-off wiped out the gains since Trump took office, leaving investors uncertain about the future economic stability. This uneasiness is driven by both global trade issues and domestic economic indicators.

Why is the stock market going down?

1. Disappointing economic data

The U.S. labor market has shown signs of weakness. According to the report of the U.S. Bureau of Labor Statistics, the number of non-farm payrolls in February 2025 was 151,000, below the expected 163,000. Meanwhile, the unemployment rate rose to 4.1% from 4.0% in January.

The disappointing data has heightened concerns about a recession and driven market volatility. The CBOE Volatility Index (VIX), often referred to as the "fear index," has risen by about 75% in the past month, reflecting investor anxiety.

2. Trump's tariff policy

President Trump's tariff policy has created huge market uncertainty. Trump recently announced a 25% tariff on all steel and aluminum imports from 35 countries, including Canada and 27 EU countries. At the same time, Trump announced a 10% tariff on all Chinese products.

Although these tariffs are intended to use trade to safeguard jobs, reduce surpluses, and "bring wealth back to the US", they have raised concerns about increased costs for businesses, especially in industries that rely on imports, such as technology and automobiles.

For example, high tariffs on Chinese imports could cost American manufacturers who rely on Chinese parts billions of dollars in additional expenses. Consumers will also feel the pinch shortly, as higher import costs will push up inflation and squeeze household budgets that are already strained by rising interest rates.

Canada, China, and the European Union have announced retaliatory tariffs on the United States, which means a new trade war has begun, disrupting global supply chains and exacerbating inflation. This anxiety about the future has affected the stock market, and some stocks in tariff-sensitive industries, such as Steel Dynamics (STLD), fell 11% on Monday.

3. Federal Reserve's monetary policy dilemma

The Fed's cautious approach to monetary policy has exacerbated market tensions.

In the official statement, the Fed noted that as inflation remains at 2.9%, the Fed will maintain interest rates in the range of 4.25%-4.5% after the January 2025 meeting. According to the Chicago Mercantile Exchange's FedWatch tool, the probability of the Fed keeping interest rates unchanged at the March meeting is as high as 97%.

The main reason for the Fed's reluctance to cut rates further may be fear of reigniting inflation. But keeping interest rates high could dampen economic growth, which could lead to an economic slowdown.

In addition, Federal Reserve Chairman Jerome Powell emphasized a wait-and-see approach to interest rate cuts. That seemed to suggest he was waiting for clarity on Trump's policies, further stoking market anxiety.

4. Sector-specific pressures

Five of the "Magnificent 7" stocks fell by more than 4% on Monday. Tesla's performance was particularly bad, with its stock price plunging 15%, the largest single-day drop since September 2020.

In the past two years, artificial intelligence has been the main driver of tech stock growth and has driven many technology companies to high valuations. This overvaluation makes technology stocks more vulnerable to negative news and policy uncertainty.

For example, Marvell Technology's disappointing performance guidance and Nvidia's lower-than-expected AI-related revenue growth have raised concerns about whether the industry can maintain high growth rates.

The broader tech stock market is also under pressure. Charlie Bilello, chief market strategist at Creative Planning, noted that the Nasdaq 100 closed last week below its key 200-day moving average, a measure of long-term sentiment for an index or stocks, for the first time in nearly two years. A change in this indicator could mean that the broader tech market is entering a correction.

How these factors feed each other

The correlation between the factors mentioned above amplifies the negative impact and creates a vicious circle that dampens market sentiment.

Tariffs, inflation, and the Fed's dilemma

US President Donald Trump's new tariffs are leading to a new trade war, driving up the cost of imports for businesses and stoking inflation. The tariff policy makes it harder for the Fed to fight sticky inflation, forcing it to keep interest rates high despite a fragile economy. High borrowing costs, in turn, dampen business investment and consumer spending, raising the risk of a recession.

Recession fears spark panic

Weak economic data and tough tariffs have fueled recession fears. Such concerns can affect companies' hiring plans and investors' confidence in the stock market, driving them to cash out and turn to conservative investments.

Goldman Sachs observed that hedge funds sold the largest amount of a single stock on March 7 in more than two years. The massive de-risking actions taken by some hedge funds in concentrated trading are comparable to those in March 2020.

Global domino effect

Given the importance of the United States to global stock markets, negative sentiment is spreading around the world.

For example, Asia-Pacific stock markets also generally fell on Tuesday, following the trend of Wall Street. Japan's benchmark Nikkei 225 index closed down 0.6% on Tuesday, South Korea's KOSPI index closed down 1.3%, Taiwan's TAIEX index closed down 1.7%, and Australia's S&P/ASX 200 index closed down 1%.

Will there be a big market crash next?

The recent turmoil has similarities to previous stock market crises but is far less severe. For example, the epidemic crisis in early 2020 caused the VIX index, a fear index, to rise sharply, almost four times in a few days, and the S&P 500 index plummeted 20% in the following weeks. In contrast, the VIX index has only risen 70% in the past month, and the S&P 500 has only fallen 9% from its peak in February.

Looking ahead to 2025, analysts have a mixed attitude toward the outlook for the stock market.

Fidelity's view

Jurrien Timmer, global macro director at Fidelity Management & Research, believes that the recent pullback is relatively common based on historical records. He said that the current situation is that earnings growth has reached double digits, but because it is entering the late stage of a bull market, the P/E ratio is a bit too high, so the market is more prone to volatility.

Timmer also suggested that avoiding overreaction and sticking to long-term investment plans can help investors get through such periods.

Goldman Sachs' view

Goldman Sachs' view is more pessimistic. David Kostin, Chief U.S. Equity Strategist, lowered his 2025 year-end S&P 500 target to 6,200 from 6,500 after Monday's stock market plunge. The new index target suggests an 11% price gain for the rest of the year, similar to the return expectations at the beginning of the year, but from a lower starting point.

Kostin believes that at least one of the following three developments is needed for the stock market to recover. First, the outlook for U.S. economic activity improves, and second, stock valuations or cyclical and defensive stock markets price economic growth far below Goldman Sachs' baseline forecast. Third, investors position for the downturn.

What does all this mean for investors?

The recent stock market decline is driven by a variety of factors, which means that the trend of the stock market will become difficult to predict in the coming months. The stock market may fluctuate downward or recover slowly. Investors need to be mentally prepared in advance to deal with any possible situation.

I suggest you review your portfolio and make corresponding adjustments. Here are a few tips:

First, stay away from tariff-sensitive stocks, such as steel stocks and aluminum stocks. If the tariff issue between the United States and countries such as Canada and the European Union escalates further, tariff-sensitive stocks will be hit again.

Second, reduce holdings of overvalued technology stocks. Technology stocks have performed particularly poorly in the recent stock market decline. In the case of market volatility, overvalued stocks will also rise/fall more. If you are not a person with high-risk tolerance, I suggest you stay away from overvalued technology stocks despite their high investment return potential.

Third, keep an eye on the news, especially news related to economic data, tariffs, and Federal Reserve policies. These news can keep you up to date on fundamentals and help you make timely investment decisions.

Conclusion

In general, the recent stock market collapse is jointly affected by multiple factors such as tariff policies, economic data, and corporate growth expectations. Changes in any of these factors in the future may affect the performance of the stock market.

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Frequently Asked Questions

Why is the stock market doing so bad now?

The main reason for the stock market's decline is fear of a recession. Fears of a recession come from uncertain tariffs, expectations of rate cuts from the Federal Reserve, inflationary pressures, slower-than-expected growth in tech stocks, and more.

What is a recession?

A recession is a period of significant economic decline, typically lasting more than a few months, characterized by widespread reductions in economic activity across various sectors. A common indicator is two consecutive quarters of negative economic growth.

When was the last time the stock market crashed?

The most recent market crash occurred in early 2020, triggered by the COVID-19 pandemic. On March 16, 2020, the Dow Jones Industrial Average plunged more than 12%, one of the largest one-day declines in recent history. However, the market recovered within a few months due to government intervention and economic stimulus plans.