Stocks cut losses. Tariff war averted. Canada reverses energy surcharge after Trump threat

U.S. stocks closed lower, but cut their steep early losses in the afternoon after Ontario Premier Doug Ford agreed to suspend a 25% surcharge on electricity imports to Michigan, New York and Minnesota.

The backpedaling came after President Donald Trump ordered on Tuesday morning a doubling of tariffs on Canadian aluminum and steel to 50% in retaliation against Ontario’s energy duties. The 50% tariffs were to become effective Wednesday, he said. After the close, the Trump administration said the double tariff is off the table in light of Ford's retreat.

Trump's retaliation, though, was the latest in a series of escalating trade moves, including tariffs on Mexico and China, that have stoked fears of a U.S. economic recession and whipsawed markets. Economists fear a trade war also will reignite inflation that’s already struggled to drop to the Federal Reserve’s 2% goal.

Stocks went into a tailspin on Monday after Trump declined in an interview on Sunday to rule out a recession this year. Instead, he emphasized "a period of transition" that's happening.

The tech-heavy Nasdaq had sunk deeper into correction territory, which is defined as at least 10% below a record high, before rebounding after the tariff war appeared to be averted. The broad S&P 500 bounced off its correction line.

The S&P 500 index ended down 0.76%, or 42.49 points, to 5,572.07; the blue-chip Dow shed 1.14%, or 478.23 points, to 41,433.48; and the tech-heavy Nasdaq slipped 0.18%, or 32.23 points, to 17,436.10 after posting its worst day since September 2022 on Monday. The benchmark 10-year yield rose to 4.284%.

Are stock investors overreacting to tariffs?

Experts are split on what the effects of the tariffs would be on the economy. While many are penciling in lower stock values due to higher risks of a recession and elevated inflation due to a rising chance of a trade war, others say the volatile stock market needs some context.

"While the (stock) pullback has been challenging, some perspective is warranted," said Daniel Skelly, head of Morgan Stanley's wealth management market research and strategy team. "Aside from a compelling argument that the market was overdue for a downturn of this magnitude, 10% corrections usually don’t become 20% bear markets unless they’re accompanied by either an economic recession, an earnings recession, or a Fed hiking cycle. We’re not seeing any of those right now."

This morning's Job Openings and Labor Turnover Survey (JOLTS) showed the labor market continued to expand in January, for example.

"The report will probably not help markets concerned with the economy, but it is still a positive report for the U.S. labor market and for the economy," said Raymond James' Chief economist Eugenio Aleman.

ING economists said "scattered calls for a U.S. recession" are "probably overblown."

What are companies saying?

Several companies -- from retail giants Walmart, Kohl’s and Dick’s to airlines like Delta and Southwest – said they’re bracing themselves for a possible slowdown in consumer spending.

About 70% of America's economy is consumer-driven. Lately, surveys have shown consumers are feeling less optimistic and now businesses are sounding alarms.

Retail giant Walmart was the first last month to suggest consumer spending may slow. Since then, major airlines, including Delta and American, and retailers like Dick's have joined the chorus.

Small business sentiment has also been dented. The National Federation of Independent Business Small Business Optimism Index showed sentiment declining and uncertainty over the outlook rising. The Uncertainty Index rose to the second-highest reading in the survey’s history, which dates to 1973.

Corporate news

• Oracle's quarterly earnings missed analysts' expectaions and issued a disappointing sales outlook. Shares of the cloud-services company fell 3.14%.
• Delta Air cut its outlook due to reduced consumer and corporate confidence and economic uncertainty. Shares shed 7.25%.
• American Airlines said it now expects to lose between $0.60 and $0.80 per share in the first three months of the year, a wider loss than the $0.20 to $0.40 per share it previously forecast. It said revenue would likely be flat on the year compared with a January estimate of a rise of as much as 5%. It cited a softer domestic leisure segment, primarily in March as one of the reasons for the diminished outlook. Shares slid 8.32%.
• Southwest Airlines said it will begin to charge for checked bags, reversing its two free bag policy, to garner more revenue. Shares jumped 8.34%.
• Tesla shares, which dropped 15% on Monday, added 3.79% after Trump said overnight on social media he would buy a new Tesla to support Elon Musk, Tesla's chief executive and the person behind the Department of Government Efficiency which is slashing federal government.
• Dick's Sporting Goods topped earnings estimates in the last three months of the year but said comparable sales growth will slow this year. Shares of the sporting goods retailer dropped 5.8%.
• Kohl's missed quarterly estimates, sending the retail chain's shares tumbling 24.16%.
• Illumina lowered its 2025 financial guidance and plans to reduce spending because China barred sales of its devices. Shares of the maker of genetic-sequencing machines dropped almost 1.69%.

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Cryptocurrency

Bitcoin rebounded Tuesday above the key psychological $80,000 mark, but pressure is expected to continue in the near-term as investors remain risk averse amid extreme market volatility, some analysts said.

Bitcoin was last up 5.46% at $83,048.74, moving up in line with the rebound in stocks.

This story was updated with new information.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.