Wall Street's main indexes fell on Tuesday, with the tech-heavy Nasdaq on course to confirm a correction, as investors feared that an escalating trade war between the U.S. and its partners could damage the country's economy.
The Nasdaq Composite index was on track to fall into correction territory, having fallen 10% from its record closing high on December 16.
Financials weighed on all the three indexes and those on the S&P 500 led sectoral declines with a 3.6% drop.
Wall Street's biggest banks such as Citigroup (NYSE:C) and JPMorgan Chase & Co (NYSE:JPM) fell 7.4% and 4.8%, respectively, sending the bigger banks index down 5.5%.
The CBOE market volatility index added 1.99 points to touch a two-month high.
The latest trigger for equities came after the United States' tariffs on imports from Mexico and Canada, along with its doubled duties on Chinese goods that took effect on Tuesday.
Following this, Beijing responded with additional tariffs on U.S. imports and Canada announced 25% tariffs on U.S. imports with immediate effect.
A standoff between the countries could upend nearly $2.2 trillion in two-way annual trade.
"The fear here is that it's going to slow (economic) growth," said Adam Sarhan, chief
executive of 50 Park Investments in New York.
"And when you have a slowdown in economic conditions, it's a situation where banks specifically make less money because fewer goods and services are traveling through the economy."
At 11:47 a.m. ET, the Dow Jones Industrial Average fell 698.44 points, or 1.62%, to 42,492.80, the S&P 500 lost 88.03 points, or 1.50%, to 5,761.69 and the Nasdaq Composite lost 210.73 points, or 1.15%, to 18,139.46.
Ford (NYSE:F) and General Motors (NYSE:GM), that have vast supply chains across north America, fell 3% and 3.6%, respectively, while housing stocks touched a one-year low.
Nasdaq components such as Nvidia (NASDAQ:NVDA) and Meta (NASDAQ:META) fell, while Tesla (NASDAQ:TSLA) dropped 5.8% after weak monthly China sales data.
Investors are pricing in that the surcharges will fan inflation pressures, dampen demand and eat into corporate profits at a time when recent data has resurfaced expectations of a stalling economy. The domestically focused Russell 2000 index (RUT) fell 2%.
Traders also added to interest rate cut bets with the Federal Reserve now expected to lower borrowing costs by at least three 25 basis points by December, according to data compiled by LSEG.
New York Fed President John Williams' comments later in the day will be parsed for the central bank's stance on monetary policy.
U.S. shares of bullion miners such as Harmony (JO:HARJ) Gold Mining rose 3.7%, tracking higher gold prices as markets flocked to the safe-haven asset.
Target lost 5.8% after the retailer forecast full-year comparable sales below estimates.
Best Buy (NYSE:BBY) fell 15.3% after the electronics retailer issued a downbeat forecast, while Walgreens jumped 6.6% as a report hinted that the pharmacy chain is closing in on a take-private deal by Sycamore Partners.

Declining issues outnumbered advancers by a 4.66-to-1 ratio on the NYSE and by a 3.27-to-1 ratio on the Nasdaq.

The S&P 500 posted 38 new 52-week highs and 43 new lows, while the Nasdaq Composite recorded 19 new highs and 571 new lows.

Source: Investing.com