Stocks surged broadly during the president’s first year in office. By late January the S.&P. 500 was up 27 percent since Mr. Trump’s inauguration. But the last few days of trading cut those gains to just 17 percent.
“When you get this kind of sell-off, it kind of feeds on itself,” said Michael P. Ryan, chief investment officer for the Americas at UBS Wealth Management.
Although the market opened lower on Monday, it actually had climbed into positive territory in the morning. But the declines snowballed throughout the afternoon. The 4.1 percent drop was the worst for the S.&P. since August 2011.
Back then, the sell-off followed growing concern about a chaotic budgeting process in the United States. A showdown between Congress and the Obama administration over the debt ceiling brought the country to the brink of default. In response, credit rating firm Standard & Poor’s stripped the United States of its triple-A rating, spooking markets.
The economy today is in tricky territory from a markets perspective. Investors have been excited about the prospects of the tax cuts, but they are also fretting that the government may be spending too much to pay for them.
Economists often advise governments to run large deficits during recessions to stimulate growth. But the United States economy is already solid.
It grew at an annual pace of 2.6 percent last quarter. Unemployment was 4.1 percent January.
In essence, the $1.5 trillion tax cut may be stimulus that the economy does not need. The extra money raises the prospect that the economy could overheat, stoking inflation.
“We’re pouring a tremendous amount of fuel on the fire,” said Rick Rieder, who oversees roughly $1.7 trillion in assets as global chief investment officer for fixed income at asset the manager BlackRock.
Global investors are also trying to navigate a changing economic backdrop.
After years of sluggish growth, major economies in Europe and Japan appear to have good momentum. On Monday, an index of eurozone purchasing manager activity, considered a good gauge of growth, hit a 12-year high, suggesting that the surprisingly strong European economy has further room to grow.
Against the strength, investors are wondering whether those central banks will tamp down on their efforts to help growth, which could send interest rates higher. Investors are anticipating that the European Central Bank could pull back, depending on the economic conditions.
The weakness on display in the United States set the tone for foreign markets. Japan’s Nikkei 225 dropped by 2.6 percent on Monday. Benchmark equity indexes in France, Italy and Spain all fell by more than 1 percent.
In the United States, financial stocks endured some of the steepest drops, led by Wells Fargo. After the close of trading Friday, the large lender was the subject of an extraordinary regulatory action when the Fed barred it from growing until it improved corporate controls.
Industrial stocks tumbled 4.5 percent. The aluminum maker Arconic fell 8.9 percent after its earnings failed to impress investors. The company also said it would bolster capital spending to ramp up production.
Likewise, ExxonMobil fell 5.7 percent Monday. The energy giant disappointed investors with its quarterly earnings report last week. The energy sector was one of the worst-performing parts of the S.&P. 500, falling by 4.4 percent.
The corporate environment reflects further forces, along with the changing course of global central banks, that could add to the choppiness of markets.
For example, oil prices have risen as global growth has picked up steam. That encourages energy companies like ExxonMobil to increase investment, as does provisions in the tax overhaul that make capital spending more advantageous. ExxonMobil has said it plans to spend $50 billion on investments in the United States over the next five years.
Those investments could be good business moves and help feed into the broader economy. But they could also send share prices lower in the short term, as investors have become accustomed to companies using investment dollars to buy back their own stock, a popular move for corporations in recent years. Goldman Sachs analysts recently noted that corporations themselves represent the single largest source of demand for stocks in the United States.
Now, the combination of global growth and tax incentives to make capital investments “actually completely changed the paradigm to just borrow to buy back your stock,” said Mr. Rieder of BlackRock.