US equities fell on Tuesday as investors weighed higher bond yields and legal developments on trade policy, setting a cautious tone at the start of September, historically one of the weakest months for the market.
The Dow Jones Industrial Average dropped 555 points, or 1.2%. The S&P 500 declined 1.3%, while the Nasdaq Composite slid 1.7%.
Investors rotated out of recent bull market leaders, with Nvidia down more than 2% and Palantir falling about 3%, leading losses in major technology shares.
The sell-off followed Friday’s ruling from the US Court of Appeals for the Federal Circuit, which determined in a 7-4 decision that most of President Donald Trump’s global tariffs were illegal.
The court found that only Congress has the authority to impose sweeping levies.
Trump called the decision “highly partisan” and pledged to appeal to the Supreme Court.
The ruling has introduced uncertainty about the billions of dollars in tariff revenue already collected, with bond investors factoring in the possibility of refunds.
Treasury yields rose sharply, with the 10-year yield reaching 4.29% and the 30-year yield climbing above 4.98%.
Investors worry that higher borrowing costs and fiscal strain could add further pressure to equities, particularly if the government is forced to return tariff proceeds.
The weak start to the month comes as September has historically been the worst period for equities.
Over the past five years, the S&P 500 has averaged a 4.2% decline in September, and more than 2% over the last 10 years.
This follows a strong August, where the S&P 500 rose nearly 2% and crossed above 6,500 for the first time.
Market attention is now turning to Friday’s US jobs report, which is expected to provide key signals ahead of the Federal Reserve’s mid-September interest rate decision.
Legal battle over Trump tariffs
The Federal Circuit Court of Appeals ruled in a 7-4 decision that the law invoked by Donald Trump to implement his tariffs, including his “reciprocal” duties, did not authorise him to take such action.
The ruling has been paused until October 14 to allow the administration to appeal to the Supreme Court.
Trump criticised the decision, calling the appeals court “highly partisan” and expressing confidence that the Supreme Court would overturn it.
Treasury Secretary Scott Bessent also said he expected the nation’s highest court to side with the White House.
Treasury yields rose this morning as investors considered the potential implications of the US being required to return revenue already collected from the tariffs.
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