Market Recap: Trade Tensions and Economic Concerns Drive Stocks Lower on March 5, 2025
U.S. stock markets continued their downward slide for the second consecutive day, as investors grappled with escalating trade tensions and worrying economic indicators. The session on Wednesday, March 5, 2025, was marked by choppy trading, with all three major indexes closing in negative territory.
Major Market Indexes Performance
The Dow Jones Industrial Average (DJI) took a significant hit, tumbling 1.6% or 670.25 points to close at 42,520.99. At its intraday low, the blue-chip index was down nearly 843.5 points. Notably, 24 out of the 30 components in the index ended in negative territory, while only 6 managed to stay in positive territory. Year-to-date, the Dow is up by a mere 0.3%, trading almost at a flat line.
The tech-heavy Nasdaq Composite also faced substantial pressure, finishing at 18,285.16. During intraday trading, the index was down 393.65 points and briefly entered correction territory, defined as a fall of 10% or more from its recent high. The Nasdaq closed 9.3% lower than its recent high recorded on December 16, 2024, and has fallen 5.2% year-to-date, marking its first annual decline in two years.
The S&P 500, Wall Street’s most observed benchmark, depreciated 1.2% to finish at 5,778.15. In intraday trading, the index slid nearly 2% and has fallen 1.5% year-to-date. All 11 broad sectors of the S&P 500 ended in negative territory.
Trade Tensions and Economic Concerns
The primary driver behind the market’s decline was President Trump’s decision to impose tariffs on three major trading partners of the United States. On March 4, the Trump administration announced:
1. 25% tariffs on imports from Canada and Mexico
2. An additional 10% tariff on imports from China
These actions have sparked concerns about a potential global trade war. China has already retaliated with additional tariffs of up to 15% on some U.S. imports. Canadian Prime Minister Justin Trudeau stated that his country would retaliate with a 25% levy on U.S. products, while Mexican President Claudia Sheinbaum announced that Mexico would respond with tariffs and other measures on U.S. imports by the weekend.
Investors are particularly worried about the impact of these tariffs on the U.S. economy, especially given that inflation rates are already above the Federal Reserve’s targeted 2% level. The new tariffs are expected to raise input costs, potentially exacerbating inflationary pressures.
Economic Indicators Raising Concerns
Recent economic data has added to investor worries:
1. Personal spending, the largest component of the U.S. economy, fell unexpectedly in January.
2. Retail sales and building construction declined last month.
3. Both consumer sentiment and consumer confidence indexes failed to meet expectations in January.
4. Manufacturing PMI for January and construction spending for December came in below expectations.
These soft economic indicators suggest growing weakness in the U.S. economy, further dampening investor sentiment.
Sector Performance and Market Movers
All sectors of the S&P 500 faced declines, with the following Select Sector SPDRs experiencing significant drops:
– Financials (XLF): -3.5%
– Real Estate (XLRE): -1.2%
– Materials (XLB): -1.4%
– Consumer Staples (XLP): -1.7%
– Industrials (XLI): -2%
– Consumer Discretionary (XLY): -1.8%
– Energy (XLE): -1%
The major loser in the tech sector was Intel Corporation (INTC), with the stock price of the desktop and notebook chipset giant tumbling 6.2%.
Market Volatility and Trading Volume
The CBOE Volatility Index (VIX), often referred to as the fear gauge, was up 3.2% to 23.51. During intraday trading, the VIX touched 26.35, its highest level since December 20, 2024. Trading volume was elevated, with a total of 18.42 billion shares traded on Tuesday, higher than the last 20-session average of 15.87 billion.
Looking Ahead
As trade tensions escalate and economic indicators continue to disappoint, investors will be closely watching for any signs of resolution or further deterioration in international trade relations. The market’s reaction to upcoming economic data releases and corporate earnings reports will be crucial in determining the short-term direction of stocks.
Investors are advised to stay informed about ongoing trade negotiations and to keep an eye on key economic indicators in the coming days and weeks. The current market volatility may present both risks and opportunities for investors, depending on their investment strategies and risk tolerance.
