U.S. stocks plunged on Monday as investors grappled with mounting concerns over the health of U.S. economy.

The Dow Jones Industrial Average fell 890.01 points, or 2.08 percent, to 41,911.71. The S&P 500 dropped 155.63 points, or 2.69 percent, closing at 5,614.56, while the Nasdaq Composite Index tumbled 727.90 points, or 4.00 percent, to 17,468.33, its worst day since 2022.

Nine of the 11 primary S&P 500 sectors ended in the red, with technology and consumer discretionary suffering the steepest declines, falling 4.34 percent and 3.90 percent respectively. In contrast, utilities and energy managed to post modest gains of 1.04 percent and 0.95 percent.

Investor unease was fueled by the recent comments from U.S. President Donald Trump, who acknowledged the possibility of a rough economic patch ahead. U.S. Treasury Secretary Scott Bessent said last Friday that the economy might experience a "detox period" as the new administration implements government spending cuts.

During a Fox News interview aired on Sunday, Trump described the economic situation as a "period of transition" when asked about the potential for a recession. "What I have to do is build a strong country," Trump said. "You can't really watch the stock market."

These remarks, coupled with escalating trade tensions -- highlighted by ongoing tariff negotiations between the United States, Mexico, and Canada -- have rattled market participants. The technology-heavy Nasdaq recorded its worst day since 2022, as major players like Nvidia, Apple, Alphabet, and Meta each fell over 4 percent, with Tesla plunging 15.43 percent.

Amid these developments, the Cboe Volatility Index surged to its highest level since December, reflecting a widespread move away from risk.

"This is the first time we've had an administration pretty much say with a straight face... the objectives are going to cause pain," said Shelby McFaddin, investment analyst at Motley Fool Asset Management.

The S&P 500 has now erased all the gains it made since Election Day in early November last year. The Nasdaq has been hit even harder, as a rally in big tech stocks driven by enthusiasm for artificial intelligence reversed course. "There's just no support in the tech stocks right now," said Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report.

Analysts are increasingly worried that the U.S. economy may face a prolonged period of sluggish growth. In a research note, Goldman Sachs chief economist Jan Hatzius revised his 2025 GDP forecast downward to 1.7 percent from 2.4 percent while raising his projection for the Fed's preferred inflation gauge to end the year at 3 percent -- up from prior estimates in the mid-2 percent range. These updated forecasts mark the first time in roughly two and a half years that U.S. GDP growth is expected to fall below consensus data, which currently anticipates above 2 percent growth.

"The reason for the downgrade is that our trade policy assumptions have become considerably more adverse," Hatzius wrote. "Our near-term view is that the FOMC (Federal Open Market Committee) will want to stay on the sidelines and make as little news as possible until the policy outlook has become clearer," he added.

Investors continued to seek safe-haven assets, driving demand for bonds and pushing the 10-year U.S. Treasury yield down to 4.22 percent, as bond prices and yields move inversely. The simultaneous decline in stocks and interest rates is often viewed as a sign of growing economic uncertainty. Adding to the cautious sentiment, oil prices also dropped, reflecting broader concerns about the economy's outlook.

Morgan Stanley's Michael Wilson cautioned that U.S. stocks could decline another 5 percent as worries mount over the impact of tariffs on corporate earnings and the effects of reduced fiscal spending. The strategist warned the benchmark could sink 20 percent in the likelihood of a recession. "We are not there, but things can change quickly and so it's useful to know the downside in the bear case to manage one's risk," Wilson said.

As market sentiment is fragile, investors continue to weigh Trump's mixed signals on tariffs and recession warnings against the backdrop of tightening trade policies and evolving monetary policy expectations. The coming weeks will be critical, with the February consumer price index scheduled for release on Wednesday and the producer price index set to follow on Thursday. 

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