By Abigail Summerville
(Reuters) -The major stock indexes closed lower on Monday, but partly recovered from initial steeper losses as U.S. President Donald Trump delayed tariffs on Mexico after his orders to levy tariffs on three countries sparked a global scramble to safe-haven assets earlier in the day.
Trump said he has paused planned tariffs on Mexico for one month after the nation agreed to reinforce its northern border with 10,000 National Guard members to stem the flow of illegal drugs, particularly fentanyl.
Over the weekend, Trump had announced hefty new tariffs of 25% on imports from Mexico and Canada, and 10% on China - which he said may cause short-term pain for Americans.
"Trump has been really serious that tariffs are going to be a primary tool to achieve a number of different things," said Carol Schleif, chief investment officer at BMO Family Office.
"They're not going away and the ride is likely to be bumpy in the short run. And it's clear the European Union is in his sights too."
Analysts at Citi noted that "if tariffs persist, markets are likely to move further (down) and inflationary effects will emerge."
The Dow Jones Industrial Average fell 122.75 points, or 0.28%, to 44,421.91, the S&P 500 lost 45.96 points, or 0.76%, to 5,994.57 and the Nasdaq Composite lost 235.49 points, or 1.2%, to 19,391.96.
Five of the 11 major S&P sectors rose, with defensive ones such as healthcare and consumer staples leading gains while information technology and consumer discretionary lost the most ground.
Legacy automakers - which have been roiled by the impending tariffs - recouped some of their losses with Ford (NYSE:F) falling 1.9% and General Motors (NYSE:GM) down 3.2%.
The Cboe Volatility Index, known as Wall Street's fear gauge, touched its highest level in a week before falling to 18.6.
The stock market had already been pulling back last week after Chinese startup DeepSeek unveiled a breakthrough in cheap artificial intelligence models that sank tech stocks.
Nvidia (NASDAQ:NVDA) dropped 2.8% and a gauge of semiconductor stocks fell 1.8%.
"With the tariffs and the DeepSeek freak-out that you had last week, you’ve got the shift going from the picks and shovels of the technology buildout towards software. There’s some of that parsing going on with a focus on software," Schleif said.
The economically sensitive Russell 2000 smallcaps index recovered from its three-week low, ending down 1.3%.
Treasury yields edged down as investors fled to safer assets such as bonds and gold. Spot gold scaled an all-time high.
Several large companies report quarterly earnings this week. Tyson Foods (NYSE:TSN) shares gained 2.2% after the meatpacker raised its annual sales forecast, while IDEXX Laboratories jumped 11.1% after the animal diagnostics maker beat fourth-quarter profit and revenue estimates.
On the data front, U.S. manufacturing grew for the first time in more than two years in January, data from the Institute for Supply Management showed.
Declining issues outnumbered advancers by a 2.18-to-1 ratio on the New York Stock Exchange. There were 85 new highs and 142 new lows on the NYSE.
On the Nasdaq, 1,306 stocks rose and 3,089 fell as declining issues outnumbered advancers by a 2.37-to-1 ratio.
Volume on U.S. exchanges was 16.34 billion shares, compared with the 15.57-billion average for the full session over the last 20 trading days.