The S&P 500 closed down below 5,000 for the first time in almost a year following Tuesday's volatile session and a strong morning rally as investor hopes faded for any imminent U.S. delays or concessions on tariffs ahead of a midnight deadline.

After stocks tumbled at their fastest pace since the pandemic in the last three days investors showed some signs of hope early in the day that President Donald Trump would soften his stance or postpone an April 9 deadline for tariffs.

But White House press secretary Karoline Leavitt said on Tuesday afternoon that Trump expects tariffs will go into effect while nearly 70 countries have reached out looking to begin negotiations to reduce the impact of U.S. trade policies.

Market participants "were optimistic this morning that we would get some sort of sign that we're moving closer to a deal or a compromise with some of these bigger countries or that there would be a delay coming given that so many people wanted to negotiate," said Lindsey Bell, chief market strategist at Clearnomics in New York.

"That doesn't seem to necessarily be the case as we are quickly approaching the midnight deadline and investors are losing confidence."

The White House said on Tuesday afternoon that it expects more tariffs on China to go into effect on April 9. This was after China had said earlier it will never accept the "blackmail nature" of the U.S. to Trump's threat to ratchet up tariffs on Chinese imports to more than 100%. And United States Trade Representative Jamieson Greer said earlier that exemptions to the global tariffs are not expected in the near term.

"People wanted to be optimistic and eventually realized they didn't have a good reason," Melissa Brown, Managing Director, Investment Decision Research at SimCorp. "Earnings are going to start to be reported in the next few days. Even if earnings in the first quarter aren't down badly we're going to see a lot of language from companies about the expected impact from the tariffs."

Quarterly earnings season will kick off later this week, with JPMorgan, Morgan Stanley and Wells Fargo set to report on Friday.

According to preliminary data, the S&P 500 lost 75.85 points, or 1.49%, to end at 4,986.40 points, while the Nasdaq Composite lost 335.35 points, or 2.15%, to 15,267.91. The Dow Jones Industrial Average fell 319.58 points, or 0.84%, to 37,657.76.

After falling as low as 36.48 points earlier in the day, the CBOE Volatility Index - seen as Wall Street's 'fear gauge' - went back up above 54 late in the session. It had risen on Monday to its highest level since August last year.

Thomson ReutersStocks, bonds and the dollar so far this year

Worries that the aggressive U.S. tariffs could spur inflation and hamper global growth have led to hopes for interest-rate cuts by the Federal Reserve.

But San Francisco Federal Reserve Bank President Mary Daly said on Tuesday afternoon that with the economy strong and a lot still unclear on the effect of new policies of the Trump administration, the central bank should not rush to adjust interest rates.

However credit spreads (the difference between corporate debt yields and the 10 year bond yields are widening) which suggest financial stress is starting to creep in. Also bond yields have started going up again. If the plan was to reduce bond yields from the tariff policy, it is not working. Mortgage rates are now starting to creep back up in the US also.

In individual stocks, health insurer UnitedHealth Group and Humana jumped after the U.S. announced a 5.06% increase in payment rates to private insurers for 2026 Medicare Advantage health plans.

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