Stocks Give Up Gains as Tariff Woes Persist

US stocks closed lower on Tuesday, erasing gains accrued earlier in the day, as the reality of President Trump’s trade wars continued to weigh on the market.

Even as investors continue to fret about the damage to the US and global economies from Trump’s tariffs, the White House affirmed that levies of 104% on China would take effect Wednesday.

The Morningstar US Market Index fell 1.6% on the day, with the largest losses coming from small-cap stocks. The S&P 500 benchmark lost 1.6% after gaining as much as 3.8% in early trading, while the tech-heavy Nasdaq was down 2.2%.

It was the fourth consecutive session of losses sparked by the announcement of the new tariffs, which were much larger in scope than financial markets expected. Stocks are down 12.3% since the start of the selloff on Thursday.

Among the major stocks moving on Tuesday morning, cyclical and technology names stood out, with Nvidia NVDA up 7.4%, Tesla TSLA up 4.6%, and Palantir Technologies PLTR up 8.3% in early trading. By the end of the day, Nvidia was down roughly 1% while Tesla lost 5%. Palantir fell 0.6%.

Tuesday’s reversal followed Monday’s erratic trading, which saw stocks dip into bear market territory and back out again as investors struggled to parse the outlook for tariffs. The S&P 500 is now 1.3% away from bear market territory.

Bonds continued to sell off on Tuesday, with the yield on the 10-year Treasury note climbing to 4.26%. Bond yields initially fell in the wake of Trump’s tariffs as recession risks appeared to grow significantly. However this week, bond yields have turned sharply higher.

Global Markets Rise

European and Asian stocks held onto Tuesday’s gains.

The Stoxx Europe 600 Index was up 2.7% after Asian markets also closed higher, led by Japanese stocks after the country appeared to have moved early to enter trade talks with the US government. The country’s Nikkei 225 equity benchmark finished Tuesday’s session 6% higher, beating Hong Kong’s Hang Seng Index, itself up 1.5%.

“From the investors’ perspective, I wouldn’t expect a clear line of travel from here, it will likely be up and down as the news flow dictates,” Morningstar chief European markets strategist Michael Field said on Tuesday. “Europe will likely release a statement in the next week, and it might be more the China approach than the Japan approach.”

In contrast with Japan’s diplomatic effort, China imposed a retaliatory 34% tariff on US goods last Friday, prompting President Trump to threaten a further escalation if they are not lifted by Tuesday.

“The one advantage of this crisis compared with those of the past is that this is entirely manmade and can be fixed quickly and easily,” says Field.

Aerospace and Defense Stocks Remain Erratic

European defense contractors were the region’s top-performing segment on Tuesday, with Sweden’s Saab SAABY up 9.9%, Leonardo FINMY up 7.8%, and Rheinmetall RNMBF up 6.4%.

The sector was among the worst decliners in the global selloff since the previous week, after a steep two-month rally had cast doubts about its valuations. On Monday, defense titles initially plunged before closing the session in positive territory, as traders saw opportunities for entry.