The US stock markets are going through a rough patch, and investors are feeling the heat. Since February 19, the total market capitalization of US stocks has dropped from $62.2 trillion to $58.7 trillion as of March 7, according to CompaniesMarketCap data. That’s a staggering $3.5 trillion wiped out in 14 days, an amount larger than the GDP of the United Kingdom or equivalent to the market value of Apple or nearly the combined value of Meta, Tesla and Netflix. So, what exactly is causing this sell-off? Let’s break it down.
The Tariff War
One of the biggest reasons for the market fall is the ongoing trade battle. US President Donald Trump has made multiple tariff-related announcements that have left investors uncertain and worried. Here’s what’s happening:
- Trump’s tariffs on Canada & Mexico: Trump initially imposed 25% tariffs on most goods from these countries but later suspended them. However, the suspension will expire on April 2.
- Tariffs on China: Trump has announced 25% tariffs on most goods imported from China with an aim to pressure China in ongoing trade negotiations
- Global tariff plans: Trump has threatened to introduce reciprocal tariffs on all US trading partners, creating tension in global markets.
- Steel & Aluminum tariffs: A 25% tariff on steel and aluminum imports will go into effect on March 12.
- Automaker exemptions: US automakers importing from Canada and Mexico were given a temporary one-month exemption from these tariffs, but this will not be extended.
- Tariffs on India: Trump has threatened that India will be among the countries on which reciprocal tariffs would be imposed from April 2. A 25% tariff has already been imposed on aluminium and steel, which accounted for under 2% of India’s export to the US.
This back-and-forth on tariffs is making investors nervous, leading to a fresh wave of sell-offs in the stock market. But why do tariffs shake the market? This is because tariffs can make imported goods more expensive, leading to higher costs for businesses and consumers. In turn, companies may pass these costs onto customers, which could reduce demand and slow down business growth. This kind of uncertainty keeps investors on edge, resulting in market volatility.
What else is making investors anxious?
Hiring Slump
US job growth is slowing down. The January payroll data showed that only 143,000 jobs were added, a 44% drop from the previous number and missing expectations of 175,000. A slowdown in hiring often signals economic trouble ahead since fewer jobs mean lower consumer spending, which directly impacts corporate earnings.
While the US job growth likely picked up in February, with the unemployment rate expected to hold steady at 4%, growing uncertainty over trade policy and deep federal government spending cuts could erode the labor market's resilience in the months ahead, according to industry experts.
Weak Manufacturing Sector
The US manufacturing sector is losing steam. The PMI (Purchasing Managers' Index) fell to 50.3, down 28% from March 2021. A falling PMI suggests that factories are producing less, which could hurt economic growth.
For any economy, manufacturing plays a crucial role as it impacts supply chains, exports, and employment. If the sector remains weak, it could mean lower industrial output and reduced profits for manufacturing firms.
Stubborn inflation
US' CPI inflation remains sticky at 3%, which is 25% higher than September 2024 levels. High inflation reduces purchasing power, increases borrowing costs, and forces the Federal Reserve to keep interest rates higher for longer.
Stubborn inflation affects everything from groceries to housing, making life expensive for consumers. The Fed’s struggle to control inflation means interest rate cuts may not happen anytime soon, disappointing investors who were hoping for multiple rate cuts this year.
Slower GDP Growth
The US economy is growing slower than expected. The GDP growth rate dropped from 3.1% in Q3 to 2.3% in Q4 last year. Slower growth means companies may earn less, and hopes of an interest rate cut are fading. When GDP growth slows, businesses may struggle to expand which can lead to lower stock prices and weaker investor confidence.
Sell-off in Nvidia, Tesla
Another reason behind $3.5 trillion being wiped off from the US market is a sell-off in some big-name stocks like Nvidia and Tesla, which have collectively lost nearly $1.2 trillion in market capitalization over the past two months.
According to the CompaniesMarketCap data, Nvidia's market capitalization has dropped from $3.3 trillion to $2.6 trillion over the past two months, marking a massive $700 billion loss in value. On a daily basis, this decline translates to an average loss of approximately $16.7 billion per trading day, highlighting the scale and speed of the sell-off.
Similarly, Tesla's market capitalization has fallen from $1.32 trillion to $847.39 billion, resulting in a total loss of approximately $472.61 billion in value. This is more than that entire m-cap of Costco as of March 7, 2025. Investors tend to pull out money from high-growth stocks when uncertainty rises.
The recent decline in Nvidia and Tesla and some other heavyweights signals investor caution and shifting market sentiment. When market heavyweights decline, they can sometimes pull the broader stock market down, as these companies hold substantial weight in major indices like the S&P 500 and Nasdaq.
Why does US market sell-off matter to global markets?
A sell-off in the US markets is concerning for investors worldwide since the US economy is the largest in the world, and its stock market influences global markets. When US stocks fall, it often triggers panic selling in other countries as well, affecting markets in Europe, Asia, and beyond. Additionally, global investors who have exposure to US stocks, either directly or through funds, could see a decline in their portfolio values. Countries with strong trade ties to the US may also experience economic slowdowns due to reduced demand for exports.
For Indian investors eyeing US stocks, a correction in US markets could be an opportunity as falling markets means that some stocks which were trading at higher valuations earlier may now be available at lower prices, making it a good time to invest in quality US companies at a discount. However, investors should focus on more than just prices while investing in US stocks.
They should look at strong companies with solid long-term potential while diversifying their investments to minimize risk. Keeping an eye on currency exchange rates is just as crucial, as they can impact returns. Additionally, investing gradually rather than all at once can help manage market volatility effectively.
What next for US markets and investors?
Market corrections are a part of investing. For now, all eyes will be on economic reports, Federal Reserve actions, and corporate earnings to see how the market reacts in the coming weeks. While the current US market decline may seem worrying, it's important to stay calm and think long-term. Whether you're a local investor or an international one, keeping an eye on economic indicators and investing wisely can help you navigate a volatile market.
Disclaimer:
The content is meant for education and general information purposes only. Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Past performance is not indicative of future returns. The securities are quoted as an example and not as a recommendation. This in no way is to be construed as financial advice or a recommendation to invest in any specific stock or financial instrument. The Company strongly encourages its users/viewers to conduct their own research, consult with a registered financial advisor before making any investment decisions. All disputes in relation to the content would not have access to an exchange investor redressal forum or arbitration mechanism. INDmoney Global (IFSC) Private Limited, Unit No. GA-02, Seat No. 1-4, Ground Floor, Pragya Accelerator Block-15 T, Road 11, Zone-1, Processing Area, GIFT SEZ, Gift City, Gandhinagar, Gujarat, India, 382355 IFSCA Broker-Dealer Registration No. IFSC/BD/2023-24/0016, IFSCA DP Reg No: IFSC/DP/2023-24/010.