U.S. stock sold off sharply on Monday, with major indexes posting their steepest declines of the year amid growing signs that the economy may be on weaker footing than previously believed.
The S&P 500 dropped 2.69 percent, its worst day in months, while the Nasdaq Composite plunged 4.00 percent, driven by sharp losses in technology stocks. The Dow Jones Industrial Average fell 890 points, or 2.08 percent, and the Russell 2000, which tracks small-cap stocks, declined 2.38 percent, signaling weakness across the market.
The bond market reflected growing investor caution, with yields on U.S. Treasuries falling as traders moved into safer assets. The 10-year Treasury yield slid 9.19 basis points to 4.226 percent, while the 2-year yield fell 9.8 basis points to 3.904 percent, indicating expectations for slower economic growth. A basis point is a one-hundredth of a percentage point. Bond yields fall when bond prices rise.
Over the weekend, President Donald Trump appeared to acknowledge the possibility of an economic slowdown, telling Fox News that there would be a “period of transition” as his administration implements major policy changes. Meanwhile, Commerce Secretary Howard Lutnick pushed back on recession concerns, stating on NBC News, “There’s going to be no recession in America.”
Treasury Secretary Scott Bessent said in an interview that the “market and the economy have become hooked, become addicted, to excessive government spending, and there’s going to be a detox period.” That is widely being interpreted as a sign that the administration is willing to accept some economic pain and financial market declines as it reforms American economic and trade policy.
While some analysts blamed the downturn in stocks on policy uncertainty or the Trump administration’s tariff plans, there was little in Monday’s sell-off to indicate that as the primary factor. Indeed, the Information Technology sector—which is likely to be little affected by trade policy—led the decline, falling 4.34 percent. Communication Services also dropped 3.54 percent, dragged lower by large-cap internet and media companies.
Consumer Discretionary stocks followed closely, down 3.90 percent, as concerns about slowing consumer spending mounted. Financials declined 2.29 percent, reflecting concerns about tightening credit conditions and recession fears..
More economically and trade policy-sensitive sectors like Industrials (-1.60 percent) and Materials (-2.12 percent) posted smaller losses.
Utilities (+1.04 percent) and Energy (+0.94 percent) managed to post small gains. These sectors often perform better in times of market stress as investors seek stability. Consumer Staples (-0.69 percent) and Health Care (-1.10 percent) also held up better than the broader market.
While stocks have been volatile in recent weeks, Monday’s decline suggests that investors are reassessing the strength of the economy. Hiring has softened, consumer sentiment has shown signs of strain, and inflation remains persistent.
The Atlanta Fed’s GDPNOW barometer of the economy currently says economic data about the first quarter of this year suggests a growth rate of negative 2.4 percent. Most economists, however, expect that more data will boost GDP growth estimates into positive territory in the coming weeks.
Friday’s jobs report showed that the labor market remains steady but with signs of cooling at the margins. Wage growth has slowed, and labor force participation has not rebounded as strongly as hoped. These factors have contributed to a more cautious outlook for corporate earnings and economic activity in the months ahead.
At the same time, consumer spending—the backbone of the U.S. economy—has begun to show cracks after holding up stronger than expected in late 2024. With higher borrowing costs and persistent inflation, many households appear to be pulling back, raising concerns about economic momentum heading into the second quarter.
Federal Reserve policy remains a key variable. The futures market has gone from all but ruling out more than two cuts by the end of this year to pricing in as many as four, an indication that traders think the economy may weaken enough to stir the central bank out of its current “pause” stance.
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