On Monday, major U.S. stock indices declined nearly 2% following President Donald Trump’s announcement that tariffs on Mexico, China and Canada would go into effect on Tuesday. The S&P 500 fell 1.8%, and the Nasdaq Composite fell 3.6%. Shares of tech giant Nvidia fell 8.7%, and those of Tesla fell 3%, nearly 40% off highs following the November 2024 election.
By Tuesday morning, indices continued their fall, with many erasing gains made since the post-election rally.
The U.S. imposed a 25% tariff on all imports from Mexico and Canada, with an additional 10% tariff added to an existing 10% tariff on Chinese imports. All three countries have pledged retaliatory measures.
Markets had appeared to ignore tariff threats earlier in the year. Experts said a common thought among investors was that the threats of tariffs were a negotiating tactic intended to draw concessions from other countries. When Trump first announced tariff plans following his inauguration, markets also fell, but they quickly recovered when enactment of tariffs was delayed. Further tariff announcements were met with a muted response.
“The sell-off that we are beginning to see has room to run (to the downside) as long as the tariff threats remain more than idle talk,” said Chris Zaccarelli, CIO of Northlight Asset Management, in a statement issued Monday. “Last month’s reprieve was just a temporary break in the downward trend, because a trade war is something the market didn’t believe was possible, so as one (or many) start to unfold, the market will begin pricing in the inevitable damage that will be done to our economy.”
Some strategists have warned that the inflationary impacts of these tariffs will result in the Federal Reserve not cutting interest rates; Treasury Secretary Scott Bessent said in an interview with Fox News on Monday that the administration is “set on bringing interest rates down.”
“The market is complacent regarding tariff impact and this is likely just the beginning with tariffs on Europe and universal ones to follow suit over the coming weeks,” said Andrzej Skiba, head of U.S. fixed income at RBC Global Asset Management, in a statement. “This will be inflationary, and the Fed won’t likely be able to cut rates in this environment.”
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