Wall St closes lower as Trump sets 25% tariffs, manufacturing data dips

By Johann M Cherian, Sukriti Gupta and Chibuike Oguh

NEW YORK (Reuters) -Wall Street's main stock indexes closed sharply lower on Monday after President Donald Trump announced the start of 25% tariffs on Canada and Mexico, with the S&P 500 posting its biggest daily percentage decline since December 18.

Stocks had already slipped after an ISM survey, and they extended losses after Trump said 25% tariffs on Canada and Mexico will go into effect on Tuesday with reciprocal tariffs starting April 2. He said the North American countries had "no room left" to avert the tariffs.

"Markets were looking for another 11th hour deal to further delay tariffs, but aren't going to get one this time," said Jamie Cox, managing partner at Harris Financial Group. "The threat of tariffs has run its course for now, so the next phase is to endure them. Markets have to price that reality, and those numbers are painted red."

The ISM survey showed manufacturing PMI slipped to 50.3 last month from 50.9 in January, while the forward-looking new orders index contracted to 48.6 in February from 55.1 in January. The dip in the PMI mirrored declines in other sentiment measures as investors worried about tariffs.

"I think it's just more of a continuation of a string of bad economic news that tends to put a little bit of a dampener on the optimism that we saw from the fourth quarter earnings that were getting released, which were pretty good," said James St. Aubin, chief investment officer at Ocean Park Asset Management in Santa Monica, California.

Energy and technology sectors led declines among the S&P 500's 11 sectors, with most megacap growth sectors ending down including chip giant Nvidia - which is down 8.7%. Amazon closed down 3.4%.Defensive sectors such as Real estate, healthcare, Utilities and consumer staples finished higher.

The Dow Jones Industrial Average fell 649.67 points, or 1.48%, to 43,191.24, the S&P 500 lost 104.78 points, or 1.76%, to 5,849.72 and the Nasdaq Composite lost 497.09 points, or 2.64%, to 18,350.19.

Recent reports of softening consumer demand have spurred fears of an economic slowdown and higher inflation. Trump is also expected on Tuesday to raise fentanyl-related tariffs on Chinese imports to 20% from 10% currently, unless Beijing ends fentanyl trafficking into the U.S. U.S.-listed shares of Chinese companies fell, with Nio tumbling 8.6% and JD.com dropping nearly 4%.

Worries about sticky inflation have made the Federal Reserve more cautious on interest rate cuts, but this week's employment and business activity data could change the central bank's view. Traders have been betting on at least two interest rate cuts of 25 basis point each from the Fed by December, according to data compiled by LSEG. Tesla erased early gains and ended down 2.84%. Morgan Stanley had reinstated the stock as "top pick" among U.S. autos. Chipmaker Intel closed lower by 4%, erasing gains that came in early trade after a report that chip designers Nvidia and Broadcom were running manufacturing tests with the company.

Declining issues outnumbered advancers by a 1.91-to-1 ratio on the NYSE. There were 195 new highs and 316 new lows on the NYSE. The S&P 500 posted 57 new 52-week highs and 27 new lows while the Nasdaq Composite recorded 58 new highs and 453 new lows.

The CBOE Volatility Index, also known as Wall Street's fear gauge, rose as high as 24.31 points, touching its highest since December 20.

(Reporting by Johann M Cherian and Sukriti Gupta in Bengaluru and Chibuike Oguh in New York; Additional reporting by Saeed Azhar in New York; Editing by Shinjini Ganguli and David Gregorio)