In the early hours of March 4, Beijing time, U.S. stocks closed sharply lower on Monday, with tech stocks showing weakness, extending the downward trend from February. The Dow Jones closed down 649.67 points, or 1.48%, at 43,191.24 points; the Nasdaq fell 497.09 points, or 2.64%, to 18,350.19 points; the S&P 500 index dropped 104.78 points, or 1.76%, to 5,849.72 points. Nvidia's stock price plummeted nearly 9%, becoming the focus of market attention.
Market sentiment was affected by Trump's impending imposition of a 25% tariff on Canada and Mexico, with investors worried that this move might trigger trade friction and further push up inflation. U.S. Secretary of Commerce Lutnick stated on Sunday that the tariffs would officially come into effect on Tuesday, but Trump may still adjust the rates. Canada strongly responded, with Foreign Minister Melanie Joly announcing that Canada is prepared to impose counter-tariffs on Canadian $155 billion (approximately $107 billion USD) worth of American products, with the first round of countermeasures worth Canadian $30 billion ready to be implemented.
Economic Data Deterioration, Manufacturing Growth Stagnation
Economic data released on Monday showed that U.S. manufacturing activity in February nearly stagnated, with raw material costs rising sharply. The Institute for Supply Management (ISM) data indicated that the manufacturing index fell by 0.6 to 50.3 in February, approaching the threshold between expansion and contraction, while the prices paid index surged to 62.4, the highest level since June 2022. This suggests that inflationary pressures are re-emerging in the manufacturing sector, and companies may struggle to pass on cost increases to consumers amid weak demand.
Additionally, the Federal Reserve's closely watched core personal consumption expenditures (PCE) price index had modest gains in January, but consumer spending saw its largest decline in nearly four years. The market is concerned that U.S. economic growth might slow down, while Trump's tariff policy further adds uncertainty to the market.
Chris Rupkey, chief economist at Fwdbonds, stated: "Whether U.S. stocks can withstand these changes remains to be seen. Regardless, Trump's tariffs will have a shock on the economy." Daiwa Capital Economics' Chris Scicluna also believes: "Economic growth in the first quarter and possibly the entire first half of the year may significantly cool down. The uncertainty of trade policy is curbing business investment while pushing up inflation expectations."
Market Bubble Concerns, Legendary Investor Issues Warning
Amid market turmoil, renowned investor Jeremy Grantham warned that U.S. stocks are in a "super bubble" state, second only to the Japanese stock market bubble in 1989 and the concomitant real estate bubble. He stated, "The longer a bubble lasts, the bigger it becomes, and the higher the risk. The current U.S. stock market has reached super bubble levels." Nevertheless, he still believes the current bubble has not reached the extent of the Japanese market in 1989.
Trump Announces Cryptocurrency Strategic Reserve
Notably, on Sunday (March 2), Trump announced on the social platform TruthSocial that the United States would include Bitcoin, Ethereum, Ripple, Solana, and ADA as part of the national strategic reserve. This is the first time Trump has publicly revealed a cryptocurrency reserve plan, emphasizing that "Bitcoin and Ethereum, along with other valuable cryptocurrency assets, will be central to the reserve."
The announcement drew market attention. Federico Brokate, head of U.S. operations at digital asset investment management company 21Shares, believes this signifies the U.S. government's active participation in the cryptocurrency economy and may accelerate institutional investors' entry into the market while providing a clearer regulatory environment. James Butterfill, head of research at CoinShares, remarked that he was surprised by other cryptocurrencies besides Bitcoin being included in the reserve: "These assets are more like investments in technology. Trump's move indicates a more lenient stance towards the crypto industry."
Moreover, Geoff Kendrick, an analyst at Standard Chartered, predicts that before Trump leaves office, the price of Bitcoin could potentially surpass $500,000.
Turbulence to Persist
Amid threats of a trade war, weak manufacturing growth, rising inflationary pressure, and the sudden shift in cryptocurrency policy, investor caution continues to mount. This week's market focus will be on the implementation of Trump's tariff policy and potential countermeasures. As the global economic situation evolves, U.S. stock market volatility may further intensify.
