"The sharp market reaction to last night’s announcement by the Trump administration ... shows how sensitive markets remain to any tariff news," said Jeffrey Kleintop, chief global investment strategist at Charles Schwab. Kleintop added that second-quarter results could "offer some insight into whether tariffs are having any actual impact on 'hard' data rather than in sentiment reflected in surveys and markets. So far, we haven’t seen any material impact."
Shares of Boeing and Caterpillar — two companies with high overseas revenue exposure — fell 1.9 percent and 3.2 percent, respectively. Chipmakers also pulled back as Nvidia, Intel and Advanced Micro Devices all dropped more than 1.5 percent.
Investors have been rattled recently by the escalation in trade relations. But Dubravko Lakos-Bujas, head of U.S. equity strategy at J.P. Morgan, thinks strong corporate earnings growth will outweigh the negative sentiment presented by those trade fears.
“Despite trade headlines, S&P 500 companies should deliver robust earnings on above-trend revenue growth and sharply higher margins,” Lakos-Bujas said in a note Wednesday. “While weaker overseas growth, stronger USD, and trade risks warrant some caution, consensus is likely too conservative considering rising disposable income ... and lower household expenses.”
Corporate earnings are expected to have risen 20 percent in the second quarter, according to FactSet. The earnings season got under way this week with PepsiCo reporting better-than-expected earnings on Tuesday. J.P. Morgan Chase, Citigroup and Wells Fargo are all scheduled to report later this week.
"You have to expect more volatility moving forward," said JJ Kinahan, chief market strategist at TD Ameritrade. "You have to listen to what the CEOs and CFOs say about these tariffs and how its impacting their businesses."
"It's almost like the dollar a few years ago," he said. "Back then, even Facebook said the strong dollar was killing them."
Global markets also fell on the new tariffs announcement. In Europe, the Stoxx 600 index slid more than 1 percent, while the Shanghai Composite dropped 1.8 percent. Treasury yields slipped — pushing prices higher — with the benchmark 10-year yield trading at 2.85 percent.
Trump is currently in Brussels attending a two-day NATO summit. During the first leg of his European trip, the U.S. incumbent has already made headlines by stating that “Germany is totally controlled by Russia,” describing how a number of “inappropriate” oil and gas deals had given Moscow too much influence over Berlin.
Shares of drug makers also fell after Pfizer said it will postpone price increases after a conversation with the president. Pfizer fell 0.6 percent, while Biogen slipped 0.2 percent. Merck declined 0.6 percent.
American Airlines fell nearly 8.1 percent after the company trimmed its outlook for second-quarter revenue growth.
—CNBC’s Sam Meredith contributed to this report