The S&P 500 Moves Closer to Correction Territory as Investors Grapple With Trump's Tariff Threat

The U.S. stock market is grappling with growing concerns about President Donald Trump's tariff policies, with the S&P 500 attempting to recover from a significant decline that brought it close to correction territory.

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According to Andrew Slimmon, a senior portfolio manager at Morgan Stanley Investment Management, investors are focusing on the negative implications of tariffs.

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However, he remains skeptical about the extent to which tariffs will drive inflation or severely impact the economy. Despite his cautious optimism, the S&P 500 closed 0.8% lower on Tuesday at 5,572.07 after a volatile trading session, according to FactSet data. A correction, defined as a 10% drop from a recent peak, would be reached if the index falls to 5,529.74, based on data from Dow Jones Market Data.

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Market volatility has surged in recent weeks as investors react to the White House’s aggressive tariff measures. Concerns are rising that these tariffs could escalate trade tensions, harm the U.S. economy, and fuel inflation. On Tuesday, Trump announced on his Truth Social platform that the U.S. would impose an additional 25% tariff on steel and aluminum imports from Canada, raising the total tariff on these goods to 50%. He attributed the decision to Ontario’s 25% surcharge on electricity exported to the U.S., stating that the new tariffs would take effect on Wednesday.

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Slimmon acknowledged the uncertainty surrounding the situation but suggested that the Trump administration’s primary goal is not to push the economy into recession. However, investors remain on edge as they await reciprocal tariffs expected to take effect on April 2. According to Slimmon, this looming deadline could make it difficult for U.S. stocks to stage a significant rebound in the short term, especially as market sentiment has turned increasingly negative.

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Despite the market's turmoil, Slimmon believes the selloff presents attractive buying opportunities. He advised investors to focus on company fundamentals rather than reacting to political developments. While he remains optimistic about the market’s long-term trajectory, Slimmon anticipates only modest, single-digit returns for the S&P 500 in 2025.

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This cautious outlook follows two strong years for the index, which gained 23.3% in 2024 and 24.2% in 2023. As of Tuesday, however, the S&P 500 has fallen 5.3% in 2025, according to FactSet.

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Tom Essaye, founder of the Sevens Report, echoed Slimmon’s view in a note released Tuesday. Essaye suggested that if fears of a policy-driven economic slowdown do not materialize, the current market valuation could attract some investors willing to endure ongoing volatility. The Cboe Volatility Index (VIX), a key measure of market uncertainty, has surged approximately 55% this year, reaching nearly 27 on Tuesday, according to FactSet data.

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Slimmon emphasized that the recent sharp price swings represent substantial volatility, especially when considering his expectations for a modest market return in 2025. He noted that speculative and momentum-driven stocks have been hit particularly hard.

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Despite the challenges, he remains interested in major Wall Street banks, which he considers to be in solid financial shape, as well as certain Big Tech companies that have experienced significant declines. Slimmon also sees value in some semiconductor stocks, which he believes are more appealing now than they were a few weeks ago.

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Big Tech stocks have been among the hardest hit in 2025. For instance, Nvidia Corp., a leading artificial intelligence chipmaker, has fallen 19% this year. Shares of the iShares Semiconductor ETF, which tracks U.S.-listed semiconductor companies, have dropped nearly 11% year-to-date. Similarly, the Roundhill Magnificent Seven ETF—which holds seven major tech firms, including Nvidia, Apple, Microsoft, Alphabet, Amazon, Tesla, and Meta—has declined 14.5% so far in 2025, according to FactSet.

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Amid these market fluctuations, traders are closely watching the Federal Reserve’s next moves. According to the CME FedWatch Tool, futures markets are pricing in the possibility of three interest rate cuts by the end of the year. Slimmon does not expect a U.S. recession in 2025 and believes the Federal Reserve may counterbalance concerns about the Trump administration’s fiscal policies.

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Nevertheless, Monday’s sharp market decline has unsettled investors. The S&P 500’s 2.7% drop on Monday raised alarm bells. While not an outright sell signal, it suggests that the recent volatility should not be dismissed as routine, according to Nicholas Colas, co-founder of DataTrek Research. In a note emailed Tuesday, Colas urged investors to take the market’s behavior seriously and remain cautious.

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As the market navigates ongoing trade uncertainties and potential Federal Reserve policy shifts, investors are left balancing short-term risks with long-term opportunities. With significant volatility persisting, the coming weeks could prove pivotal in determining the market’s direction for the remainder of the year.

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