It was only three weeks ago that exuberance over Donald Trump’s blueprint for the economy had vaulted U.S. stocks to a record high. Today, with concern mounting over the goals and impact of his trade war, the S&P 500 tumbled into its first 10% correction in almost two years.

Volatility surged anew across asset classes Thursday, extending a retreat from risk that has lopped $5 trillion from the U.S. equity benchmark and shows signs of seeping into high-yield bonds. New salvos in President Trump’s tariff offensive spurred another race for havens in the Treasury market.

The S&P 500 — perched at a record as recently as Feb. 19 — slid to a six-month low. This year’s selloff in megacaps deepened, amplifying the moves. And speculative corners on Wall Street from unprofitable tech to the most-shorted shares and crypto got crushed. An $8 billion exchange-traded fund tracking junk bonds saw one of its biggest losses in 2025, bucking the rise in Treasuries.

In another sign of a trade-war escalation, Trump threatened to enact a 200% tariff on European wine, champagne and other alcoholic beverages. Later Thursday, Trump said he would not repeal tariffs on steel and aluminum that took effect this week, nor back off plans for sweeping reciprocal tariffs on global trading partners set to start as soon as April 2.

“In only a few weeks, the broader market has gone from record highs to correction territory,” said Adam Turnquist at LPL Financial. “Tariff uncertainty has captured most of the blame for the selling pressure and is exacerbating economic growth concerns.”

The S&P 500 fell 1.4%. The Nasdaq 100 slid 1.9%. The Dow Jones Industrial Average dropped 1.3%. A gauge of tech megacaps lost 2.5%. Adobe Inc. sank on a disappointing outlook, while Intel Corp. surged after naming an industry veteran as its next chief.

The yield on 10-year Treasuries fell five basis points to 4.27%. A $22 billion U.S. sale of 30-year bonds was weak. The dollar rose 0.1%.

Former Treasury Secretary Steven Mnuchin discounted risks of a U.S. recession, and played down the current selloff in equities, advising investors against overreacting to President Trump’s aggressive trade tactics.

“We came in with the market being fully priced, so I think a 5% to 10% correction on the S&P or the Nasdaq actually makes sense,” Mnuchin said in an interview with Bloomberg’s Saleha Mohsin Thursday.

Trump used markets as a litmus test for the success of his first administration, and relished in the gains posted after his victory in November.

But the stark shift from economic optimism is creating an unsettling reality for traders trying to figure out where America’s markets go from here. One major question: At a time when it’s easier than ever for people to see fluctuations in their day-to-day net worth, can a stock rout take the U.S. economy down with it?

“After the election, we framed the likely impact of economic policies from Donald Trump’s second presidential administration as a mix of vegetables and dessert,” said Libby Cantrill and Allison Boxer at Pacific Investment Management Co. “Some policies could leave a bitter taste for the economy and markets – i.e., the vegetables – while others would support growth, the so-called dessert.”

“The net economic impact of the Trump administration’s second term will likely depend on the sequencing, scope, and mix of all of these policies, with risks to both the upside and downside,” they added.

“Clearly this is going to be a much more volatile year and it remains to be seen if all of the revolutionary changes to the economy and trans-Atlantic alliances will lead to a recession or if it will lead to higher growth rates in the future,” said Chris Zaccarelli at Northlight Asset Management. “In the meantime, a more cautious and risk-off posture is warranted.”

With fears remaining at the forefront, Bespoke Investment Group strategists noted that investor sentiment also remains very frail. They cited the latest weekly poll from the American Association of Individual Investors, which showed that bearish sentiment was above 55% for the third straight week.

“The only other time since 1987 that bearish sentiment was above the ‘speed limit’ was in the three weeks ending March 4, 2009,” the Bespoke strategists said.

The flip side of souring sentiment is that it could be a contrarian indicator for markets, noted Jeff Schulze at ClearBridge Investments.

“Surging policy uncertainty has dented consumer and investor sentiment, raised inflation expectations and stalled the equity market rally, he said. “Should policy uncertainty ebb in the coming months, we believe risk assets will rebound.”

While the sharp drop in equity markets has been painful, Turnquist at LPL Financial says the downside rate of change and current drawdown is nothing out of the ordinary.”

Since 1950, 92% of trading days are accompanied by some degree of a drawdown on the S&P 500 (roughly 8% of days have been record highs), he said. A selloff inside of 5% is the most common, occurring in around 40% of all trading days.

“Swift drawdowns also create oversold conditions, and we are beginning to see signs of the broader market reaching washed-out territory,” he said. “However, the damage to longer-term breadth, lack of institutional participation, and defensive rotational pressures leave us cautious on buying the dip right now.”

To Matt Maley at Miller Tabak, it’s important to note the recent market action action does not preclude the market from seeing a nice near-term bounce.

“The major averages are still quite oversold, and the all-important tech sector is coming off a condition that was more oversold than the major averages. Therefore, if this group can continue to bounce back in a meaningful way, the rest of the market will almost certainly follow it higher, he said.”

In addition, Maley said that if the economic data we see going forward is not weaker — and/or if we get any positive news out of Washington DC — the market could still see a rather nice rebound at almost any time.

“The question remains whether or not any near-term bounce will signal that the low for this decline is over,” Maley noted. “We do not think so. We believe that we’ll see more material weakness in the stock market — whether it comes immediately, or after a short-term rebound. Just because it has declined in a material way, does not make it fairly valued!”

“There are immediate and looming questions about how much more pain the equity market might endure,” said Michael Purves at Tallbacken Capital Advisors. “Do we buy this dip (down 10% from the peak)? Or do we sell into relief rallies such as we had yesterday?”

In a note, he highlights that there are various “technical bearish signals” that are converging in the same manner as they did in the first quarter of 2022.

“These are just technical signals, and the market risks and macro backdrop today are very different from what they were in 2022,” he said. “However, in a market environment that lacks clarity, these technical signals take on a greater prominence.”

As a reminder, Purves notes, the 2022 bear market was driven entirely by P/E contraction, not falling earnings.

“Prospectively, the market needs to figure out two things: (1) will valuation need to be re-rated to a lower range to account for policy/economic/inflation uncertainty, and (2) will earnings start falling?” he said. “If we get a concurrence of falling earnings and P/E re-rate, then the probability of the SPX selling off to 4,800 will become much higher.”

The gauge closed at 5,521.52 on Thursday.

Ed Yardeni of eponymous firm Yardeni Research has lowered his year-end estimate on the S&P 500, with the best-case target cut to 6,400 from 7,000. The worst-case goal stands at 5,800.

“We continue to bet on the resilience of the economy. However, we acknowledge that it is being severely stress-tested now by Trump 2.0’s tariff turmoil and shotgun approach to paring the federal workforce,” he said.

Earlier in March, Yardeni raised the probability of a U.S. recession this year to 35% from 20%.

U.S. equities are pricing in a recession risk much bigger than credit markets, leaving room for a positive surprise, according to JPMorgan Chase & Co. strategists including Nikolaos Panigirtzoglou and Mika Inkinen wrote in a note.

“While there is clearly elevated uncertainty in the near term as the Trump Administration has at least initially prioritized more disruptive polices, the risk is that credit markets are proven right,” they said.

“The Treasury market is flirting with recession signals, helping amplify the risk-off sentiment in equities, while at the same time sending an alternative message of relative calm with relatively tight credit spreads,” according to Gina Martin Adams and Michael Casper at Bloomberg Intelligence.

Notably, the Federal Reserve’s Treasury-based recession model flagged year-ahead recession risk a year ago, and may be proven right if tariff uncertainty continues to hamper economic activity, they said. Historically, a model reading exceeding 30% has accurately predicted recession one year out. And the current probability is 29.76%.

“The credit model’s implied probability continues to hint at a much calmer economic climate,” they noted. The indicator’s probability for recession was above 10% for most of the past two years and now sits at 13% — still just shy of suggesting a recession is in the cards.”

Key events this week:

—U.S. University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

—The S&P 500 fell 1.4% as of 4 p.m. New York time

—The Nasdaq 100 fell 1.9%

—The Dow Jones Industrial Average fell 1.3%

—The MSCI World Index fell 1.2%

—Bloomberg Magnificent 7 Total Return Index fell 2.5%

—The Russell 2000 Index fell 1.6%

Currencies

—The Bloomberg Dollar Spot Index rose 0.1%

—The euro fell 0.4% to $1.0848

—The British pound fell 0.1% to $1.2944

—The Japanese yen rose 0.4% to 147.71 per dollar

Cryptocurrencies

—Bitcoin fell 3.6% to $80,155.78

—Ether fell 2.1% to $1,851.36

Bonds

—The yield on 10-year Treasuries declined five basis points to 4.27%

—Germany’s 10-year yield declined two basis points to 2.86%

—Britain’s 10-year yield declined four basis points to 4.68%

Commodities

—West Texas Intermediate crude fell 1.6% to $66.58 a barrel

—Spot gold rose 1.6% to $2,982.96 an ounce

(With assistance from Isabelle Lee, Sujata Rao, Allegra Catelli, Chiranjivi Chakraborty and John Viljoen.)

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