Even good news on U.S. inflation isn't assuaging investors spooked by the prospects of a global trade war.

Stocks fell Thursday amid the latest salvo from President Trump, who on Thursday threatened to slap a 200% tariff on European Union exports of wine, champagne and other alcoholic beverages in retaliation for the trading bloc's hiking of duties on American whiskey to 50%. The EU announced the measures in response to U.S. tariffs on foreign steel and aluminum taking effect on Wednesday. 

The S&P 500 fell 78 points on the day, or 1.4%, to close at 5,521. The index, which rose in the weeks following Mr. Trump's re-election in November, has given up those gains and is now down roughly 10% from its high of 6,147 on Feb. 19. That puts it in "correction" territory, or when stocks fall at least 10% from their previous peak, a sign investors are souring on the outlook for corporate earnings.

The Dow Jones Industrial Average dropped 537 points, or 1.3%, while the Nasdaq Composite, which is also in correction, sank nearly 2%.

"Trump's trade agenda is dominating everything, and until there is a cessation in the daily escalation of threats and retaliation, stocks will struggle to rally," equity analyst Adam Crisafulli of Vital Knowledge told investors in a research note.

Rising uncertainty stemming from the White House's aggressively protectionist trade policies and mounting concerns about the strength of U.S. economic growth are outweighing recent signs that inflation is easing. Costs for Americans edged down in February, according to Consumer Price Index data released on Wednesday.

"Part of the reason for the limited response to yesterday's CPI data is that growing concerns about the U.S. economy have taken the focus off the risks of higher inflation related to President Trump's tariff policies," John Canavan, lead U.S analyst at Oxford Economics, said in a report. 

Signs of a slowdown

For now, most Wall Street analysts downplay the risks of an immediate recession, noting that the job market remains healthy. But a slew of signals suggest the economy is starting to lose momentum, including weaker corporate earnings, eroding consumer confidence and stingier retail sales.

"You look at the economy today, you see a weakening," JPMorgan Chase CEO Jamie Dimon said on Wednesday at a retirement event in Washington, D.C., held by asset management giant BlackRock and the Bipartisan Policy Center. "Consumer still spending money. Jobs are still plentiful. Wages are still going up. CPI has kind of leveled off a little bit, but you do see a weakening in sentiment and certain kinds of spending that people consider more discretionary."

Signs of slowing growth, along with stubbornly elevated prices for food, rent and other staples, has aroused concerns that the U.S. could eventually face "stagflation," or when economic activity sinks even as inflation remains high. 

The crosscurrents buffeting the economy are complicating life for policymakers at the Federal Reserve, who must balance their ongoing effort to douse inflation with their mandate to keep the economy on track. Analysts with Morgan Stanley predicted Thursday that the central bank will leave its benchmark interest rate unchanged at its next meeting on March 18-19.

"The core messaging from the January meeting, where Chair [Jerome] Powell emphasized the Fed was 'not in a hurry' to make adjustments to policy, is likely to remain in place in March," they wrote in a report.