On Monday, the prospect of a severe trade war sent Wall Street reeling. U.S. equities originally plummeted due to concerns over President Donald Trump’s tariffs, but then recovered after Mexico announced that it had reached an agreement for a one-month reprieve.
Following worse declines in Asian and European benchmarks, the S&P 500 ultimately fell 0.8%. The Nasdaq composite fell 1.2%, while the Dow Jones Industrial Average dropped 122 points, or 0.3%.
At the beginning of trade, concerns about the extent of the pain that U.S. companies would experience as a result of the tariffs had put the U.S. stock market on course for a far worse loss. The Dow fell as much as 665 points, while the S&P 500 was momentarily down about 2%.
Big Tech and other businesses that would be most impacted by higher interest rates brought on by the U.S. tariffs announced on imports from China, Canada, and Mexico suffered some of the worst losses.
Wall Street is concerned that Trump’s tariffs may increase the cost of groceries, gadgets, and other household costs for Americans, further driving up the country’s inflation rate, which has been mainly declining since its peak three summers ago. The Federal Reserve started lowering interest rates in September to support the U.S. economy, but it may be prevented from doing so if inflation remains stubbornly high or accelerates. Meanwhile, a slowdown in international commerce may put negative pressure on U.S. company profits.
However, after speaking with Trump, Mexican President Claudia Sheinbaum announced that tariffs on her nation’s goods would be suspended for a month, which caused U.S. stocks to reduce their losses. In the afternoon, the Dow even experienced a slight increase in value. Canadian Prime Minister Justin Trudeau said a talk he had with Trump also resulted in a 30-day delay after the U.S. stock market ended the day.
A large portion of Wall Street had hoped that Trump’s remarks about tariffs during the presidential campaign would only be rhetoric and a starting point for talks with U.S. trading partners rather than a long-term policy. It’s unclear from Monday’s swivels on Canada and Mexico whether Trump is merely using tariffs as a negotiating weapon.
However, traders’ worry of an intensifying trade war that might harm economies throughout the globe, including the US, swiftly grew when they arrived on Monday morning believing duties were impending.
Because so much crude oil crosses the northern U.S. border to create gasoline, Brian Jacobsen, chief economist at Annex Wealth Management, said that as someone who lives in the Midwest, he may feel the effects of the trade war the quickest and most. It is difficult for our refiners to move away from Canadian oil.
Amid the uncertainty, crude oil prices fluctuated on Monday. Prior to the opening of the U.S. stock market on Monday, the price of a barrel of benchmark U.S. crude dropped from $72.53 on Friday to almost $75 before momentarily reversing course and returning to $72.
Trump acknowledged that the tariffs might cause some discomfort for Americans, but he claimed that the cost would be justified in order to restore American greatness. Additionally, he stated on Sunday evening that import duties will undoubtedly be implemented with the European Union and perhaps the United Kingdom as well.
Given how much Trump pays closely to the stock market, some Wall Street analysts are still pessimistic about how long a trade war might last. Significant stock market volatility may force a shift in strategy, according to Solita Marcelli, chief investment officer, Americas, at UBS Global Wealth Management. As Monday morning swiftly illustrated, an intensifying trade war can send equities down.
The business that distributes Modelo and Corona beers in the US, Constellation Brands, saw a 3.5% decline. Best Buy, a retailer of global electronics, saw a 2.4% decline. The Canadian alcohol distributor for Jack Daniel’s, Brown-Forman, saw a 3.3% decline.
The S&P 500 dropped 45.96 points to 5,994.57 overall. The Nasdaq composite fell 235.49 to 19,391.96 and the Dow fell 122.75 points to 44,421.91.
Longer-term U.S. government bonds, which are seen as among of the safest potential investments, were preferred by investors over equities and cryptocurrency, whose prices also dropped during the turmoil. Treasury rates fell as a result of the subsequent increase in their prices.
Late Friday, the yield on the 10-year Treasury fell as low as 4.46% before easing up to 4.53% from 4.55%.
It is a brief respite from the recent tremors in Wall Street caused by an increase in longer-term Treasury yields.Concerns about the potential for rising interest rates due to persistently high inflation had contributed to the increase in yields.
On Monday, short-term Treasury yields increased as fewer people expected the Fed to lower interest rates. The two-year Treasury’s yield increased from 4.21% to 4.25%.
All types of investments are impacted by higher yields, but equities that are thought to be the most costly are especially hard hit.
Companies like Nvidia and other beneficiaries of the artificial intelligence boom are highlighted as a result. One of the biggest weights on the S&P 500, Nvidia had a 2.8% decline.
Last week, a Chinese startup claimed to have created a large language model that could outperform major U.S. competitors without requiring the most costly, top-tier chips, putting pressure on such AI superstars.
In a week when other events, such as a report released on Friday that revealed the number of workers employed by U.S. firms last month, would normally garner more attention, Trump’s tariffs took center stage. This week also saw the release of numerous profit reports from Amazon, Alphabet, and other significant corporations.
Indexes in foreign stock markets dropped 1.2% in Paris, 1.4% in Frankfurt, and 1% in London. In Asia, Japan’s Nikkei 225 dropped 2.7%, and South Korea’s Kospi declined 2.5 percent.
