Wall Street tumbles as tariff whiplash and falling AI stocks drag Nasdaq 10% below its record

All the moves keep hope alive that Trump may be using tariffs as just a tool for negotiations rather than as a permanent policy and that he may ultimately avoid a worst-case trade war that grinds down economies and sends inflation higher.

But Trump is still pressing ahead with other tariffs scheduled to take effect April 2. And the growing pile of dizzying back-and-forth moves on tariffs is only amping up the uncertainty. It was just on Monday that Trump said there was "no room" left for negotiations that could lower the tariffs on Mexico and Canada, which took effect Tuesday.

“These exemptions don’t do much to resolve the general air of uncertainty,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management. “Businesses will still be cautious in the current environment until a lot more of the tariff picture is clear.”

U.S. businesses are already saying they're confronting "chaos" because of all the uncertainty coming out of Washington. while U.S. households are bracing for higher inflation because of the tariffs, which is sapping their confidence.

Such reports have raised the possibility of a worst-case scenario known as "stagflation," where the economy is stagnating and inflation is high. It's something that policy makers at the Federal Reserve don't have a good tool to fix.

“Much will depend on whether these new tariffs prove temporary or are toned down,” according to strategists at BNP Paribas. “But even if they are ultimately removed, we anticipate lasting damage to global economic activity.”

Next up for Wall Street is a report coming Friday from the U.S. Labor Department on how many workers U.S. employers hired last month. A solid job market so far, along with the solid spending by U.S. households that it's allowed, have been linchpins in preventing a recession.

Some big retailers have been offering warning signals recently about how much U.S. consumers can keep spending.

Macy's on Thursday reported slightly weaker revenue for the end of 2024 than analysts expected, though its profit topped expectations. It also gave a forecast for profit in 2025 that fell short of analysts'. Its shares fell 0.7%.

It was a similar story for Victoria’s Secret, which beat Wall Street’s fourth-quarter sales and profit forecasts but gave a revenue forecast for the upcoming year that fell short of analysts’ expectations. Its stock fell 8.2%.

Making things worse for the U.S. stock market, some of its biggest stars are seeing their glow dim.

Semiconductor companies and their suppliers were particularly heavy weights, after soaring to staggering heights because of the frenzy around artificial-intelligence technology.

Marvell Technology lost nearly a fifth of its value and dropped 19.8% even though it reported results for the latest quarter that edged past analysts’ forecasts. It also said it expects revenue growth in the current quarter of more than 60% from the prior year, give or take a bit.

But that wasn’t enough for investors, who have grown used to AI-related companies trouncing expectations.

The poster child of the AI boom, Nvidia, fell 5.7%, while Broadcom lost 6.3% ahead of the release of its earnings report. They were two of the heaviest weights on the S&P 500.

AI superstars had been dominating Wall Street for years and helped it run to record after record. But those soaring performances, including a nearly 820% surge for Nvidia from 2023 into 2024, had critics saying prices had grown too expensive. They're also facing threats as Chinese companies develop their own AI offerings, with DeepSeek famously saying it didn't need to use the industry's most expensive chips.

All told, the S&P 500 fell 104.11 points to 5,738.52. The Dow Jones Industrial Average dropped 427.51 to 42,579.08. The Nasdaq composite tumbled 483.48 to 18,069.26.

In stock markets abroad, indexes were mixed in Europe after the European Central Bank cut interest rates, as was widely expected.

German stocks rallied 1.5% as the market continues to feel reverberations from an agreement by the two parties that will form the country's next government to loosen constitutional limits on borrowing. It's a major turnaround in German budget policy and opens the way for new borrowing and spending over the next decade.

Stocks also rose in Asia, including jumps of 3.3% in Hong Kong and 1.2% in Shanghai.

China's commerce minister said Thursday that his country will not yield to bullying and that its economy can weather higher tariffs imposed by Trump, though he added that there are "no winners in a trade war."

In the bond market, the 10-year Treasury yield edged up to 4.29% from 4.28% late Wednesday.

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AP Business Writers Matt Ott, Elaine Kurtenbach and Christopher Rugaber contributed.