US stock markets plunged on Monday as a mix of trade tensions, economic uncertainty, and the threat of a looming federal government shutdown drove investors into a panic. The steep selloff that started last week gathered pace, with the three main indexes experiencing huge losses. 

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The S&P 500 has fallen over 8 per cent from its February 19 all-time high, while the Nasdaq Composite has entered formal correction territory after falling more than 10 per cent from its high in December. The selling tide has wiped out trillions of dollars of market capitalisation, fuelling concern for a global economic downturn.

A combination of factors has contributed to the market's weakening, such as high stock valuations, changing trade policy, and lacklustre corporate earnings. The uncertainties caused by tariff disagreements with Canada, Mexico, and Europe are prompting business leaders to revisit their strategic frame of mind, says Peter Orszag, CEO of Lazard. Investors have reacted by retreating from equities, resulting in indiscriminate losses for most sectors.

The market decline has erased considerable value, with the S&P 500 declining more than 8.6 per cent from its February peak, representing a loss of over $4 trillion in market cap. The Nasdaq Composite's greater than 10 per cent drop from its December peak highlights the sharp volatility engulfing the markets.

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Technology shares have been among the hardest hit during the recent selloff. Tesla's value dropped by over $125 billion in a single day, with Apple and Nvidia losing about 5 per cent each. The broader S&P 500 technology sector also fell 4.3 per cent. Other sectors have not been spared either; the stock of Delta Air Lines fell by 14 per cent following the company's decision to cut its profit forecasts for the first quarter in half, due to fear of economic conditions.

Volatility surges on recession fears

Investor nervousness about a recession has also picked up. In a recent interview, when asked if he foresaw a recession this year, US President Donald Trump admitted that the economy was experiencing a "period of transition" but declined to make a categorical forecast. Ross Mayfield, an investment strategist at Baird, observed that the administration seems to be prepared to tolerate short-term economic discomfort to realise its longer-term policy objectives.

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Despite the market upheaval, the White House has kept resisting recession fears, insisting that economic fundamentals are strong. White House National Economic Council Director Kevin Hassett said that although there are short-term blips in economic figures, there are still grounds for optimism in the economy's future. He also stated that trade uncertainties would soon be resolved and that tax cuts would yield long-term gains in investment and wages. However, few investors are optimistic, as sustained volatility reflects sustained nervousness.

Soon, investors will be closely watching a few key indicators that may affect market stability, including future inflation readings, Federal Reserve interest rate determinations, and any government efforts to stabilise the economy. Investment analyst Dan Coatsworth stated that worries regarding high stock valuations have been building for quite some time now, with numerous market participants predicting a correction. As market volatility persists, investors are urged to stay up to date and think about diversification plans to contain risks.

With uncertainty hanging over financial markets, everyone waits with bated breath for the coming economic data and government policy decisions to decide whether this decline is a temporary dip or the beginning of a more extended economic downturn.

(With inputs from agencies)