S&P 500 slides into a correction as trade and inflation weigh on traders

The S&P 500 dropped into correction territory Thursday, sinking below an important symbolic landmark amid investor anxiety over trade policy and inflation.

The widely-followed stock index closed at about 5,521 - down more than 10 percent from its record close last month. A correction is defined as falling at least 10 percent from a peak.

The Dow Jones Industrial Average fell more than 1 percent, while the tech-heavy Nasdaq composite index ended the trading session more than 2 percent lower.

Wall Street has been fretting about the direction of the Trump administration’s tariff policies, which have been rolled out sporadically, bewildering investors. Stocks have also been dragged lower by concerns about slower economic growth at a time when inflation still isn’t as low as policymakers would have hoped. Several prominent investment banks have said recently they think the odds of a recession are getting higher.

“It remains to be seen if all the revolutionary changes to the economy and transatlantic alliances will lead to a recession or it will lead to higher growth rates in the future,” said Chris Zaccarelli, chief investment officer for Charlotte-based Northlight Asset Management. “But in the meantime, a more cautious and risk-averse posture is warranted.”

The S&P 500 sank into correction territory Thursday afternoon after Trump threatened to escalate a trade war with the European Union by enacting a 200 percent tariff on the EU’s wine, champagne and other alcoholic beverages after the bloc announced it would place a 50 percent tariff on U.S. whisky in response to Trump’s tariffs on steel and aluminum.

Trump administration officials have defended his aggressive use of tariffs despite recent market volatility and continued fears of an economic slowdown. Trump himself declined to rule out a recession during an interview Sunday, noting that it will take “a little time” before Americans will see a payoff from his policies. On Tuesday, Commerce Secretary Howard Lutnick told CBS News that Trump’s trade policy is “worth it” even if it leads to a recession.

Positive economic data this week hasn’t eased market concerns. The producer price index, which measures the cost of producing consumer goods, was flat in February, according to data released Thursday. The better-than-expected reading comes after inflation eased slightly in February, providing an unexpected signal of progress in combating high inflation. Those metrics provide a “silver lining to slowing growth,” said Adam Turnquist, chief technical strategist for LPL Financial, even as the broader market approaches “washed out territory.”

But the outlook for inflation depends on “tariffs, deportations and DOGE” more than backward-looking economic data for February, said Bill Adams, chief economist for Comerica Investment Bank.

“In short, the other shoe hasn’t dropped yet in the economic statistics,” Adams said. “Financial markets are paying more attention to announcements from the White House about tariffs and job cuts than the hard numbers.”

Retailers are watching Trump’s tariff rollout. A slew of companies have pared their expectations for this year, predicting economic uncertainty and tariff pressure could undercut consumer spending.

Recent market routs, Adams said, have hit tech stocks especially hard - a shift for a sector that typically props up the broader market. Among the so-called Magnificent 7 stocks, six of them - Alphabet, Amazon, Apple, Microsoft, Nvidia and Tesla - are down 10 percent or more for the year. The lone exception, Meta, remains up slightly year-to-date.