March Mauling: Recession Fears Spark Sell Off

(Monday market close) Major indexes collapsed to nearly six-month lows Monday after President Trump declined to rule out a recession. With no sign of any change in tariff plans and the Federal Reserve hesitant to ease rates, Wall Street lacks two support pieces investors leaned on earlier this year when they bought dips.

The Dow Jones Industrial Average^® ($DJI) fell 890.01 points (–2.08%) to 41,911.71; the S&P 500^® index (SPX) shed 155.63 points (-2.69%) to 5,614.56, and the Nasdaq Composite^® ($COMP) lost 727.90 points (–4.00%) to 17,468.33, in its worst session since 2022. The Nasdaq and Russell 2000^® (RUT) are now in correction territory, down 10% or more from recent peaks, while the SPX is down almost 9% from its record high posted last month.

President Trump said over the weekend that the economy is "in a period of transition," and his commerce secretary said the administration will continue its current economic policy path.

Trump's words reinforced recession worries as he declined to deny the possibility. The SPX posted its lowest close since September 12, and bitcoin (/BTC), often seen as a measure of investors' willingness to take on risk, gave back 4.5% to below $80,000. Tesla (TSLA), another stock associated with risk appetite and with the administration due to its CEO Elon Musk, toppled more than 15%.

The SPX is down more than 6% since the final session before the inauguration. Back-and-forth messaging from the White House on tariffs has led to confusion among corporations and investors, and to risk-off sentiment and choppy trading across most of the market. The Cboe Volatility Index^® (VIX) climbed to nearly 30 intraday on Monday, up from below 15 earlier this year and a strong indication of uncertainty in the equity market.

A few sectors initially escaped Monday's damage, and by midday only 255 of the stocks in the S&P 500 were lower while several sectors were higher, mostly on the defensive side. Selling gathered new momentum late in the session, however, and few sectors escaped. Even so, sectors traditionally associated with risk-off trading, including utilities and staples, topped an ugly Monday scorecard.

"Defensive leadership persists," said Liz Ann Sonders, chief investment strategist at Schwab.

The selling pressure weighed most heavily on tech shares that led last year's rally, with six of the Magnificent Seven stocks now among the bottom 350 S&P 500 performers year to date. The S&P Technology Select Sector Index (IXT) was down 14% from its last high as of intraday Monday, but still needs to fall a couple more percentage points to be worse than the pullback tech experienced last summer.

Highly capitalized tech, communication services, financials, and consumer discretionary formed the foundation of Monday's sell off. Besides Tesla, other Magnificent Seven shares like Apple (AAPL), Nvidia (NVDA), and Alphabet (GOOGL) suffered sharp losses. Bank shares have also suffered in the sell off because they're often seen as proxies for the economy. JPMorgan Chase (JPM) fell 4% today. A slight comeback in mega caps the last half hour kept the SPX from closing near its intraday lows.

The S&P 500 Equal Weight Index (SPXEW) is down less than 1% for the year versus a more than 4% drop for the SPX. The equal-weighted index weighs all stocks the same, rather than by market capitalization. This dichotomy between the SPX and the SPXEW highlights the shift away from growth sectors.

Last week's rising job cuts data and certain aspects of Friday's nonfarm payrolls report played into fears that a slowing economy might be damaging the labor market. The "U-6" measure of the jobs report rose to 8% on a seasonally adjusted basis from 7.5% in January, the highest since late 2021. This alternate measure of unemployment includes people employed part-time for economic reasons or people "marginally attached" to the labor force.

Monday's data brought little relief, as the New York Fed's consumer inflation expectations report for the year ahead rose to 3.1%, the highest since last May. Unemployment expectations in the report rose to a level last seen in September 2023, a time when recession worries were also on the march.

From a technical perspective, it's hard to say the market is oversold yet. The Relative Strength Index (RSI) for the SPX is still above 30, a level that traditionally indicates oversold conditions. And the VIX is relatively contained below the mid-30s seen back in August.

With the SPX now below its 200-day moving average of 5,734 for the first time since late 2023, technical support lies well beneath current levels. The September low near 5,400 and the August low of 5,150 may be areas to watch.

Rate cuts later this year still seem likely as the Fed funds futures market is now pricing in three cuts by year-end, but the Fed will probably be on hold the next few meetings. The CME FedWatch tool puts odds of another rate pause at around 95% for the Fed's meeting next week, but projects about a 48% chance of a cut at the early May Fed meeting. At least one rate cut by June is a 90% possibility, according to futures trading.

Still, rate cut hopes suffered late last week as Fed Chairman Jerome Powell indicated no hurry to trim until Washington policy gets more certain, and Fed Governor Adriana Kugler, also speaking late last week, appeared to agree. Monday's slightly higher inflation expectations also could work against hopes for a cut as soon as May.

Wednesday's February Consumer Price Index (CPI) is expected to show 0.3% monthly gains for both headline and core consumer prices, analysts say, down from 0.5% and 0.4% in January. Gasoline prices fell in February and may help ease the headline CPI number, but that won't play into the core reading that excludes food and energy.

The capitol becomes a focus point this week as legislators work to avoid a possible government shutdown. Funding for government operations expires Friday. A vote could come as early as tomorrow, but it's unclear if there are enough Republican votes to get the plan over the finish line.

"If it passes the House, it will go to the Senate, where a 60-vote supermajority will be needed, meaning at least seven Democrats will have to support it—no sure thing," said Michael Townsend, managing director, legislative and regulatory affairs at Schwab. "A shutdown would add another element of uncertainty and chaos into a market already reeling in confusion about tariffs and the rapid-fire policy changes coming out of the administration."

• Apple (AAPL) plunged 4.8% on news that its AI upgrade for Siri would be delayed indefinitely.
   
• Tesla (TSLA) dropped 15.4% and has fallen every week since the inauguration, with soft monthly sales reported from China the latest source of pressure. Tesla is the worst performing stock in the S&P 500 this year and is down more than 50% from its recent peak.
   
• Nvidia (NVDA) lost nearly 5% as pressure on AI chip stocks continued. This is a combination of risk-off trading, U.S. export restrictions against China, and growing competition for Nvidia from both new platforms like DeepSeek and also competitors like Broadcom (AVGO).
   
• AppLovin (APP) fell nearly 12%. Investors might be disappointed that the stock didn't get added to the SPX, as some had anticipated.
   
• Palantir (PLTR), a stock that was very popular in the tech sector last year, fell 10% as investors continued to rotate out of technology names. Broadcom (AVGO) and Oracle (ORCL) also fell sharply, while the PHLX Semiconductor Index (SOX) skidded more than 4.8% to lows last seen in early August.
   
• Bitcoin (/BTC) fell 4.5 to around 25% off of recent highs, and crypto-related stocks MicroStrategy (MSTR) and Coinbase (COIN) lost 16.7% and 17.5%, respectively as risk-off sentiment continued and investors appeared disappointed by the White House's crypto event last Friday. A plan announced by MicroStrategy to sell $21 billion of its preferred stock to buy more Bitcoin added pressure.
   
• ServiceNow (NOW) crumbled nearly 8% after agreeing to buy AI agent company Moveworks for $2.85 billion, Bloomberg reported.
   
• Redfin (RDFN) jumped 68% after news that the real estate listing company would be bought by tech firm Rocket Companies in a $1.75 billion all-stock deal. The deal values Redfin at $12.50 per share, Bloomberg reported, well above the $5.82 closing price from Friday.
   
• The 10-year Treasury note yield (TNX:CGI) dropped a dramatic 10 basis points to 4.21%, and yields were down across the curve, mostly by double digits. This may reflect a "flight to safety" trade in rough Wall Street waters and as investor concern grows over a possible U.S. government shutdown. The 10-year yield peaked at 4.8% earlier this year.

Volatility considerations: If you're worried about the current choppiness, you're almost certainly not alone. Turbulent market conditions can make anyone nervous, so here's some of Schwab's expert perspective on things investors might want to consider at such times, including resisting the urge to sell and taking the long-term view.

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap this week.

March 11: January Job Openings and Labor Turnover Survey (JOLTS) and expected earnings from Dick's Sporting Goods (DKS) and Kohl's (KSS). 
March 12: February Consumer Price Index (CPI) and core CPI and expected earnings from Adobe (ADBE).
March 13: February Producer Price Index (PPI) and core PPI and expected earnings from Dollar General (DG) and Ulta Beauty (ULTA).
March 14: University of Michigan Preliminary March Consumer Sentiment.
March 17: February retail sales.
March 18: February housing starts and building permits and February industrial production.