At one point, the tech-heavy Nasdaq Composite fell more than 10% from its mid-December closing high, ending 9.4% below that top.
US Stocks Face Tricky Moment as Trump’s Latest Tariffs Land:
The recent tariffs imposed by President Donald Trump are causing a reckoning in the U.S. stock market. The benchmark S&P 500 closed Tuesday’s trading session down almost 6% from its closing high of February 19, and it is now in negative territory for the year due to further drops. At one point, the tech-heavy Nasdaq Composite fell more than 10% from its mid-December closing high, ending 9.4% below that top.
For investors concerned that declining U.S. economic data casts doubt on growth, tariffs are making matters worse. According to Peter Tuz, president of Chase Investment Counsel, the imposition of the tariffs “brings with it uncertainty as far as the earnings of some companies as well as the overall direction of the U.S. economy.”
“I believe there was some hope that agreements would be reached with the impacted parties and we wouldn’t see them before they were implemented.” On Tuesday, Trump doubled penalties on Chinese goods to 20% and imposed 25% tariffs on imports from Canada and Mexico. Analysts generally believe that the taxes on imports will raise inflation and reduce business profitability.
According to investors, tariffs provide difficulties for businesses by making supply chains more complex or raising expenses, some of which would be passed on to customers through increased prices. In a report released Monday, Morgan Stanley’s equities strategists projected that 10% tariffs on China and 25% on Mexico and Canada through 2026 may collectively lower S&P 500 profits by 5% to 7%.
In a note, Nationwide Chief Economist Kathy Bostjancic stated that if the targeted countries retaliate proportionately and the levies are kept in place through 2025, the tariffs could reduce GDP growth by at least one percentage point and increase inflation by 0.6 percentage points this year.
Economic Advances:
Trump recently proposed a reciprocal duty on European goods and the responsibilities that were the subject of Tuesday’s discussion. Investors’ concerns about the economic impact and the possibility of similar taxes being applied to Europe caused European equities to fall from their all-time highs. Uto Shinohara, senior investment strategist at Mesirow Currency Management, said, “Trump’s tit-for-tat strategy has increased fears of a global trade war.”
According to Michael O’Rourke, chief market strategist at JonesTrading, the multinational corporations that rank among the most enormous weights in the S&P 500 “will pay the price because they will have their profit margins squeezed” due to the tariffs. According to Apollo Worldwide Management, 41% of S&P 500 revenue originates from outside the US, indicating that a global slowdown brought on by tariffs may also impact the US.
The duration of the tariffs and the degree to which the president is using them to negotiate with trading partners on other matters are factors that investors are considering. “The other parties must be willing to negotiate more agreeable terms because Trump has increased the stakes in his negotiating position to try to gain the upper hand,” stated Robert Pavlik, senior portfolio manager at Dakota Wealth.
However, in a report, Deutsche Bank economists stated that “the administration’s willingness to enact aggressive tariff actions on two close trade partners could signal that higher tariffs are likely to follow in other areas.” The introduction of the additional tariffs coincides with several recent economic data points from the United States that have been poor or disappointing, such as retail sales, corporate activity, and consumer confidence.
The most recent decline has slightly tempered stock values, but as of Monday, the S&P 500 was still trading at 21.3 times price-to-earnings expectations, which is much higher than its long-term average of 15.8, according to LSEG Datastream.
The Volatility index reached its highest level since late December on Tuesday, indicating investor concern. In a report on Monday, Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, stated that stocks “are dealing with potential new headwinds.” “A recent run of weak economic data and declining consumer confidence, along with policy uncertainty, has caused many to revisit the growth outlook, even though investors, consumers, and CEOs prefer predictability.”
