Why did the US markets surge on open and then totally collapse?

The US stock market indices had a roller-coaster ride on Tuesday. Markets initially soared on hopes of progress in global tariff negotiations, but reversed course as Trump confirmed that tariffs would be implemented as planned.

On Tuesday, the Dow Jones Industrial Average closed 0.8%, or almost 320 points lower, after surging nearly 1,500 points earlier. The S&P 500 and tech-heavy Nasdaq Composite, which both rose more than 4% this morning, finished 1.5% and 2.2% lower, respectively.

The US markets are set to open lower as President Donald Trump’s sweeping tariffs come into effect today. The biggest worry for the market is the trade war between the US and China, which looks to get uglier ahead. The US has imposed 104% tariffs on Chinese imports. Markets now view the two economic powers as entrenched in a full-scale trade war.

Also Read: US Federal Reserve FOMC meeting minutes to be released today

The White House referred to the measures as “non-negotiable,” citing national security reasons. Meanwhile, China vowed to “fight to the end” in the escalating trade dispute.

Despite claims that over 70 countries, including Japan and South Korea, were eager to negotiate, the absence of actual advances dampened market enthusiasm. Looking ahead, investors are waiting for the Fed’s latest minutes to see whether there are any new signals on interest rate direction.

The larger impact is on the Dow index. “The three largest sectors in the Dow Jones index — industrials, technology, and consumer discretionary — are now at the center of selling pressure due to these growing concerns. This helps explain why the Dow has seen deeper losses compared to other major indices in the same session. Recent data suggests that the pace of disinflation is slowing, raising the likelihood that the Fed will maintain its “higher for longer” stance — a factor that could lead the Dow Jones to decline further,” says Linh Tran, Market Analyst at XS.com.

What is more alarming for the market is the huge selling pressure seen in US Treasuries. The 10-year bond yields are surging. Here’s why.

Meanwhile, oil prices are falling, easing market concerns about inflation. This should also support bond prices, pushing yields lower. The US Dollar also weakened due to President Trump’s tariff package, causing fears of economic impact and retaliation. The greenback is likely to be weighed down by recession risks and trade tensions, as investors flee to the yen and Swiss franc.