Stock markets tumble as investors pull back from American assets

Wall Street weakened Monday as investors worldwide became more skeptical about American investments, something many economists suggest is due to U.S. President Donald Trump's trade war and his ongoing criticism of the Federal Reserve.

The S&P 500 sank 2.4 per cent in another wipeout. That yanked the index 16 per cent below its record set two months ago.

The Dow Jones Industrial Average dropped 971 points, or 2.5 per cent, while losses for Tesla and Nvidia helped drag the Nasdaq composite down 2.6 per cent.

In Canada, the main S&P/TSX composite index fell 0.76 per cent today. 

Perhaps more worryingly, U.S. government bonds and the value of the U.S. dollar also sank as prices retreated across U.S. markets. It's an unusual move because the value of U.S. Treasurys and the dollar have historically strengthened during episodes of nervousness. This time around, though, experts say it is policies directly from Washington that are causing the fear and potentially weakening their reputations as some of the world's safest investments.

Trump kept up his tough talk on global trade Monday as economists and investors continue to say his stiff proposed tariffs could cause a recession if they're not rolled back. U.S. talks last week with Japan failed to reach a quick deal that could lower tariffs and protect the economy, and they're seen as a "test case," according to Thierry Wizman, a strategist at Macquarie.

"The golden rule of negotiating and success: He who has the gold makes the rules," Trump wrote in all capital letters on his Truth Social Network. He also said that "the businessmen who criticize tariffs are bad at business, but really bad at politics," likewise in all caps.

Trump has recently focused more on China, the world's second-largest economy, which has also been keeping up its rhetoric. China on Monday warned other countries against making trade deals with the United States "at the expense of China's interest" as Japan, South Korea and others try to negotiate agreements.

"If this happens, China will never accept it and will resolutely take countermeasures in a reciprocal manner," China's Commerce Ministry said in a statement.

Also hanging over the market are worries about Trump's anger at Federal Reserve Chair Jerome Powell. Trump last week criticized Powell again for not cutting interest rates sooner to give the economy more juice.

The Fed has been resistant to lowering rates too quickly because it does not want to allow inflation to re-accelerate after slowing nearly all the way down to its two per cent goal from more than nine per cent three years ago.

Trump also referenced Powell in a social media post on Monday afternoon when he posted about a slowdown coming for the U.S. economy "unless Mr. Too Late, a major loser, lowers interest rates, NOW."

A move by Trump to fire Powell would likely send a bolt of fear through financial markets. While Wall Street loves lower rates, largely because they boost stock prices, the bigger worry would be that a less independent Fed wouldn't be as effective at keeping inflation under control. Experts worry that such a move could further weaken, if not kill, the United States' reputation as the world's safest place to keep cash.

All the uncertainty striking pillars at the centre of financial markets means some investors say they're having to rethink the fundamentals of how to invest.