Smashed Australian stocks enter correction as market now down 10 per cent since last month’s record high

Australia’s battered shares have lurched into correction territory as US President Donald Trump’s aggressive and contradictory trade policies triggered another savage day of trading.

Smashed by Mr Trump’s not unexpected rejection of tariff exemptions for Australia and concerns about the fallout of a looming trade war between the US and Canada, the S&P-ASX200 on Wednesday traded as much as 1.8 per cent lower before closing 1.3 per cent off at 7786.2 points.

The market twice fell into a correction, which is categorised as a fall of 10 per cent or more from its 52-week peak, during afternoon trading.

The S&P-ASX200 has given up all of its gains for the year to be 4.6 per cent down for 2025.

With 2.2 per cent wiped from share values this week alone, it has been an extraordinarily quick turnaround since the barometer’s record high of 8615 points on just February 15.

AMP Capital chief economist Shane Oliver warns that because of “increasing uncertainty and overstretched (share) valuations”, losses could stretch to 15 per cent or more before investors see a sustained recovery.

“At some point economic weakness and its impact on support for Trump and Republican politicians along with share market falls – with Trump ultimately seeing share gains as a key performance indicator – will put pressure on him to reverse course and focus on more positive policies,” Dr Oliver said.

“But we are likely not at that point yet. So, we continue to see a high likelihood of a 15 per cent-plus correction in shares before more positive forces around Trump’s tax cuts and deregulation and more Fed rate cuts get the upper hand.”

Investors are struggling to balance the promised benefits of Mr Trump’s growth agenda with the threat of the hard-nosed policies pushing the world’s biggest economy into recession.

“The US administration has described a compelling future US economy—one that’s deleveraged from the public sector, recalibrated global trade to benefit US households, and implemented new tax policies designed at least in theory to support broad based growth,” Royal Bank of Canada economists noted on Wednesday.

“But the challenge is, of course, getting there. And perhaps, what is weighing most on these goals is the growing recognition that the bridge from now to that desired outcome isn’t seamless or guaranteed,” they said.

The sell-off among local shares gathered pace after another day of chaos in the US overnight on Tuesday as investors worried about the impact of the latest tariff threats on the global economy.

Trading was volatile, following conflicting tariff updates, while progress toward a ceasefire between Ukraine and Russia briefly lifted equities.

Mr Trump said he would double tariffs set to take effect within hours on all imported Canadian steel and aluminium products to 50 per cent but later dialled back the threat while downplaying the risk of a tariff-led recession.

Just one of the ASX200’s 11 sectors, utilities, finished in the green, and then by only a tiny 0.02 per cent. Consumer discretionary stocks were the worst performer, down 2 per cent, while the index-heavy banks gave up 1.6 per cent.

Despite Mr Trump saying the would be no exemptions, the Australian Government is still trying to negotiate a carve-out from tariffs for Australian steel and aluminium, after the duties went ahead.

Foreign Minister Penny Wong said Australia was a “good ally and partner, and a trusted friend” to the US, and does not believe this is the way “friends and allies should be treated”.

She insisted the fight on tariffs wasn’t over yet, and “we’ll continue to do the work”.

However, some markets and currencies continue to benefit, with global advisory group deVere calling out the euro’s rise against the US dollar and the ongoing rush of cash into European stocks.

“Investors are beginning to price in the risks of a more fragmented global economy, with supply chain disruptions and inflationary consequences in the US,” chief executive Nigel Green said.

“Stock markets in Germany and France, often seen as barometers of economic confidence, are already drawing renewed interest from global investors.

“At the same time, European sovereign bonds are regaining appeal as a hedge against US volatility.”

Mr Green said of Mr Trump, “the man who has spent years railing against Europe’s trade policies is now inadvertently giving the euro its best run in months.”