NEW YORK, Sept 2 (Reuters) - Wall Street started off September on a sharply lower note on Tuesday as investors weighed the legality of President Donald Trump's tariffs after a federal appeals court most of his sweeping tariffs illegal.
A divided U.S. appeals court ruled on Friday that most of Trump's tariffs are illegal, but allowed for the levies to be in place until October 14. The Trump administration can still file an appeal with the Supreme Court.
That rattled investors on Tuesday after the long Labor Day holiday weekend, with September traditionally a weak month for equities.
The CBOE Market Volatility index (.VIX), touched its highest mark in over four weeks and was last up at 18.1.
With the ruling, "the question becomes, 'Has the Trump administration alienated our trading partners as well as given up the revenue from tariffs?' That's what's plaguing markets," said Oliver Pursche, senior vice president and adviser for Wealthspire Advisors in Westport, Connecticut.
"By the same token, it's too early to call this the beginning of a great correction," he said. "At the end of the day, we all know that August-September tend to be more volatile and a little more challenging for investors before we get into the fourth quarter, which tends to be a pretty solid one."
Data going back decades shows that, on average, September is the worst month for U.S. stocks, and some investors are bracing for another bumpy ride this year.
In addition, investors are anxious to see the August U.S. nonfarm payrolls report, due on Friday.
The Dow Jones Industrial Average (.DJI), fell 389.54 points, or 0.86%, to 45,155.34, the S&P 500 (.SPX), fell 68.57 points, or 1.06%, to 6,391.69 and the Nasdaq Composite (.IXIC), fell 274.17 points, or 1.28%, to 21,181.24.
Markets are pricing in about a 91.2% chance of a 25-basis-point cut in interest rates at the Federal Reserve's meeting later this month, according to the CME Group's FedWatch tool.
Real estate (.SPLRCR), and technology (.SPLRCT), led declines among S&P 500 sectors.
Shares of Kraft Heinz (KHC.O), fell 7.4%. The packaged goods giant will split into two listed companies.
On the flip side, shares of PepsiCo (PEP.O), gained 1.6% after Elliott Management disclosed a $4 billion stake in the beverages company, launching an activist campaign.
On the Nasdaq, 1,334 stocks rose and 3,194 fell as declining issues outnumbered advancers by about a 2.39-to-1 ratio There were 95 new highs and 105 new lows.
On the NYSE declining issues outnumbered advancing ones by a 3.1-to-1 ratio. There were 155 new highs and 49 new lows.
Reporting by Caroline Valetkevitch in New York; Additional reporting by Purvi Agarwal and Ragini Mathur in Bengaluru; Editing by Pooja Desai, Maju Samuel and Matthew Lewis
