The benchmark S&P 500 and Dow finished lower on Tuesday as trade tensions escalated following U.S. President Donald Trump's new tariffs on Canada, Mexico and China.

The 25% tariffs on imports from Mexico and Canada, along with doubled duties on Chinese goods, took effect on Tuesday. China and Canada retaliated while Mexican President Claudia Sheinbaum vowed to respond likewise, without giving details.

"Equity valuations have been very elevated and there's been yellow flags all over the horizon given moves to cut government spending," said Ben McMillan, chief investment officer at IDX Insights in Tampa, Florida. "Now on top of that, we have all this rhetoric around tariffs."

Citigroup and JPMorgan Chase & Co fell, sending the bigger banks index (.SPXBK) lower.

The CBOE market volatility index rose 0.70% to its highest since December 20.

"The fear here is that it's going to slow (economic) growth," said Adam Sarhan, CEO 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."

The S&P 500 lost 71.04 points, or 1.21%, to end at 5,778.68 points, while the Nasdaq Composite lost 67.12 points, or 0.37%, to 18,283.07. The Dow Jones Industrial Average fell 673.34 points, or 1.56%, to 42,517.90.

Car makers Ford and General Motors, which have vast supply chains across North America, fell. The domestically focused Russell 2000 index dropped.Wall Street is really concerned, McMillan said. "The likelihood of tariffs will lead to higher prices and therefore lower spending."Target fell after the retailer forecast full-year comparable sales below estimates. Best Buy slumped after the electronics retailer issued a downbeat forecast, while Walgreens jumped as a report hinted that the pharmacy chain is closing in on a take-private deal by Sycamore Partners.

Portfolio News

Active Trading Portfolio: Yesterday's announcement from the EU regarding the €800 billion war chest has significantly impacted the Euro's valuation. The news triggered a broad weakening of other currencies against the Euro, as traders began factoring in the potential inflationary effects and the possibility of a less aggressive rate-cutting strategy by the ECB than previously anticipated.
Consequently, our planned EUR/JPY trade did not materialize. In periods of such significant market-moving news, it's crucial to allow the market to stabilize and establish a new equilibrium. Given the magnitude of this announcement and the upcoming data releases this week, we will closely monitor foreign exchange movements. We will promptly notify you of any emerging trading opportunities. Check Out the Active Trading Portfolio.
Option Trading Portfolio: The market's been throwing some curveballs lately, hasn't it? From trade wars to unexpected economic data, our SPY trade may need a strategy adjustment (depending on your outlook). We've analyzed the latest developments and outlined potential actions you can take. Want to know how to navigate this volatility and protect your profits? Click below to read our full update and make informed decisions. Check Out the Option Trading portfolio.
Buy and Hold Portfolio: Our long-term buy-and-hold portfolio has achieved a 5% year-to-date return, outperforming the broader market indexes (which are down 2%!). We are evaluating eight additional stocks for potential inclusion in the portfolio. Please refer to our Buy and Hold Portfolio for details. We will provide an update upon the completion of our stock selection. Check out out the Buy and Hold Portfolio.