Wall Street’s rally came to an abrupt halt as a broad selloff erased the S&P 500’s gains for 2025, with the Nasdaq 100 plunging to its lowest level since November.
Investor sentiment soured amid mounting concerns over rising inflation, renewed trade tensions under President Donald Trump and fading momentum in the artificial intelligence (AI) sector.
The S&P 500 dropped 1.6% while the Nasdaq 100 sank 2.8% due to the decline in megacap tech stocks. Chipmaker Nvidia Corp. tumbled 8.5% as its earnings failed to ease concerns that AI-driven profits may not meet market expectations.
The downturn was exacerbated by fresh trade uncertainty after Trump reaffirmed his commitment to imposing a 25% tariff on imports from Canada and Mexico starting March 4, alongside an additional 10% levy on Chinese goods.
The move sent shockwaves through global markets, with the MSCI AC Asia Pacific Index slipping 2% as investors braced for potential economic fallout.
“Nvidia’s earnings were solid, but they didn’t go far enough to calm fears that AI-driven growth won’t be as strong as many investors had hoped,” said Matt Maley, strategist at Miller Tabak + Co. “Combine that with uncertainty from Washington, and you have a recipe for increased volatility.”
Tech Stocks Lead Market Decline
The selloff hit the so-called ‘Magnificent Seven’ megacaps particularly hard, with the group shedding 3% on the day. Broader market weakness also dragged down the Russell 2000, which fell 1.6%, signaling a risk-off sentiment among investors.
Investor anxiety has intensified as inflation remains stubbornly high, complicating expectations for Federal Reserve rate cuts. Fresh data showed the U.S. economy grew at an annualized pace of 2.3% in Q4 2024, with consumer spending expanding by 4.2%, reinforcing concerns that price pressures may persist longer than anticipated.
“Investors want the Fed to cut rates, but they also don’t want to see economic weakness force their hand,” said Bret Kenwell, strategist at eToro. “The worst-case scenario is inflation remaining sticky while growth slows.”
Investor Pessimism Reaches Multi-Year High
The latest American Association of Individual Investors (AAII) Sentiment Survey revealed a sharp shift in market sentiment, with bearish sentiment soaring to 60.6%, the highest level in years. Meanwhile, bullish sentiment slumped to just 19.4%, reflecting growing unease about the market’s near-term outlook.
“High levels of bearishness historically tend to lead to strong market rebounds, but these levels are unprecedented while stocks remain near recent highs,” analysts at Bespoke Investment Group noted.
Outlook Remains Uncertain
Traders are now looking ahead to the release of the Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures (PCE) index, expected to show that price pressures remained elevated in January.
Market analysts warn that if inflation proves more persistent than expected, it could force the Fed to keep rates higher for longer, further pressuring equities.
With rising trade tensions, AI sector uncertainty, and inflation fears clouding the market outlook, volatility is expected to persist in the weeks ahead.
