The benchmark S&P 500 and Dow finished lower on Tuesday as trade tensions escalated following U.S. President Donald Trump’s new tariffs on Canada, Mexico and China.
The 25% tariffs on imports from Mexico and Canada, along with doubled duties on Chinese goods, took effect on Tuesday. China and Canada retaliated while Mexican President Claudia Sheinbaum vowed to respond likewise, without giving details.
“Equity valuations have been very elevated and there’s been yellow flags all over the horizon given moves to cut government spending,” said Ben McMillan, chief investment officer at IDX Insights in Tampa, Florida. “Now on top of that, we have all this rhetoric around tariffs.”
Citigroup and JPMorgan Chase & Co fell, sending the bigger banks index lower.
The CBOE market volatility index rose 0.70% to its highest since December 20.
“The fear here is that it’s going to slow (economic) growth,” said Adam Sarhan, CEO of 50 Park Investments in New York. “And when you have a slowdown in economic conditions, it’s a situation where banks specifically make less money because fewer goods and services are traveling through the economy.”
According to preliminary data, the S&P 500 lost 71.04 points, or 1.21%, to end at 5,778.68 points, while the Nasdaq Composite lost 67.12 points, or 0.37%, to 18,283.07. The Dow Jones Industrial Average fell 673.34 points, or 1.56%, to 42,517.90.
Car makers Ford and General Motors, which have vast supply chains across North America, fell. The domestically focused Russell 2000 index dropped.
Wall Street is really concerned, McMillan said. “The likelihood of tariffs will lead to higher prices and therefore lower spending.”
Target fell after the retailer forecast full-year comparable sales below estimates.
Best Buy slumped after the electronics retailer issued a downbeat forecast, while Walgreens jumped as a report hinted that the pharmacy chain is closing in on a take-private deal by Sycamore Partners.
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Already-nervy markets were greeted on Tuesday with a full-blown trade war and major diplomatic row, as fears of a first-quarter economic downturn erased hopes that the U.S. economy will sail through the disruption unscathed.
U.S. tariff hikes against Canada, Mexico and China are set to go ahead and have already been met with retaliatory measures from Beijing.
Wall Street smells trouble. The S&P500 recorded its deepest loss of the year on Monday, notably on a day when Germany’s defence-spurred DAX index clocked its biggest daily gain in more than two years.
In fact, all three major U.S. stock indexes are back in the red for the year, as Treasury yields hit near 5-month lows, the dollar recoiled and high yield corporate credit spreads have widened the most since October.
Three Federal Reserve interest rate cuts this year are once again being priced into money markets, one more than the Fed has indicated.
Given all this, today I’m taking a deeper look at how Donald Trump’s administration seems to have undermined domestic confidence - and the economic outlook - with policy uncertainty as much as any direct impact from new measures.
Today’s Market Minute
Low US policy visibility equals big economic trouble
Markets spent so much time figuring out the direction of Trump’s economic policies, they might have missed the risk that no one ever really knows what’s next.
Designed in part to keep rival negotiators guessing and calculated to wring concessions, the new Trump Administration’s deliberate ambiguity on trade tariff policies or geopolitical alliances may take its toll if domestic business doesn’t know what exactly they’re planning for.
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