The U.S. stock market is facing a period of heightened volatility and caution as investors grapple with the ongoing uncertainty surrounding U.S. President Donald Trump’s trade policies and growing concerns about the broader economic outlook.

According to financial commentator Jon Erlichman, the recent market sell-off was largely driven by “a roadmap that’s been forming over the last few months.”

Investors, who were buoyed by the initial optimism of Trump’s business-friendly stance, have grown increasingly wary as the administration’s focus on long-term plans has overshadowed the short-term performance of the stock market, Erlichman told CTV’s Your Morning in an interview Tuesday.

He noted that the introduction of tariffs and the resulting retaliatory measures from trading partners like Canada have further exacerbated the market’s jitters.

Erlichman said the “geopolitical jitters in Europe” and the “flow of capital away from the U.S.” have contributed to investors’ cautiousness, with European stocks outperforming their U.S. counterparts so far this year.

Market sell-off

The stock market’s sell-off cut deeper Monday as the S&P dropped 2.7 per cent, or 156 points, to drag it close to nine per cent below its all-time high set just last month.

The S&P 500 was down 3.6 per cent at one point and on track for its worst day since 2022.

In Canada, the TSX composite index closed down nearly 400 points Monday, recovering some ground after dropping by more than 500 points earlier in the day.

Founder of Option Pit and chief information officer of Karman Line Capital Mark Sebastian noted that Monday’s sell-off was “top heavy.”

“The selling obviously started with Apple, but then also polluted into Nvidia, Amazon, all the major players, and then (the) next tier down: the financials. A lot of the names that had really taken off post-election, they’ve now been kind of cut back,” he said in an interview with BNN Bloomberg Tuesday.

While stocks face rifts, investors have instead bid up U.S. Treasury bonds in the hopes that those prices will hold up better as the economy is put under pressure. This has sent their prices higher and in turn sent down their yields.

“For some players in the market, when they’re scared, they’ll actually move into Apple rather than U.S. Treasuries, given the kind of the volatility that we’ve seen in the bond market over the last six to nine months. Apple, when you look at it, is a kind of safer play,” Sebastian said.

The Nasdaq Composite index, which heavily weighs toward tech, slid by four per cent on Monday.

A shrinking U.S. economy

When asked whether he was expecting a recession in 2025, Trump told Fox News Channel on Sunday: “I hate to predict things like that. There is a period of transition because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing.” He then added, “It takes a little time. It takes a little time.”

Adding to the market’s unease are the emerging signs of economic weakness, particularly in the U.S. Erlichman pointed to recent comments from Delta Airlines, which revised its outlook and cited weakening travel demands, as a concerning indicator.

A collection of real-time indicators compiled by the Federal Reserve Bank of Atlanta suggests the U.S. economy may already be shrinking.

“While there’s a story about Main Street and Wall Street, a lot of wealth for a lot of people is tied up in the stock market,” Erlichman said. “When you start to see weakness there, people start worrying about the same things like ‘do I want to travel to the U.S. right now’?”

According to Erlichman, the potential for central bank interest rate cuts, despite inflation concerns, in countries like Canada has also raised questions about the broader health of the global economy.

Erlichman emphasized that while market corrections are a normal occurrence, the current environment is unique due to ongoing tariff uncertainty. He acknowledged that the stock market’s performance is closely tied to the broader economic landscape.

“There is still a belief out there that this could be a positive market overall for the year, but it is going to depend on where the economy lands and where Trump ultimately decides he wants the economy to land with this longer-term tariffs,” Erlichman said.

Sebastian said while he’s unsure if the selling is over, a day or two of rallying – or period of sustained increases in the prices of stocks – is possible. “I think there’s a little bit of hope around this Trump meeting with business leaders,” he added.

Trump met on Monday with tech industry CEOs, but the event was closed to the news media. He remained silent about the sell-off through the day.

With files from The Associated Press and The Canadian Press