Wall Street Suffers Losses as Trade War Wipes Out S&P 500 Gains
On Tuesday, Wall Street faced significant declines as escalating trade tensions triggered losses across major indices, wiping out all post-election gains for the S&P 500. Retailers like Target and Best Buy reported pressures from tariffs, impacting their stock prices. The situation amplifies concerns about a global economic slowdown and has led to a revised outlook for corporate earnings growth in the upcoming quarter.
Wall Street experienced further losses on Tuesday, erasing all post-election gains for the S&P 500 as escalating trade tensions emerged between the United States and its primary trading partners. The S&P 500 fell by 1.2%, while the Dow Jones Industrial Average declined by 670 points, or 1.6%. Despite a rebound in major technology stocks like Nvidia, the Nasdaq finished down 0.4%. Retail giants Target and Best Buy reported pressures on sales and impending price hikes due to the trade conflict, exacerbating stock market declines.
The Trump administration enacted tariffs on imports from Canada and Mexico beginning Tuesday, while also increasing tariffs against Chinese imports. This action provoked retaliatory measures from all three countries, raising concerns about a potential slowdown in the global economy. At one point, the S&P 500 dropped by 2%, reflecting losses across 66% of its constituent stocks, thus erasing gains made since Election Day.
Although early trading was precarious, the S&P 500 stabilized, ultimately dipped slightly in afternoon trading. The Dow Jones Industrial Average initially fell over 840 points but later showed slight recovery, down by 223 points or 0.5%. Meanwhile, the Nasdaq composite managed a small rebound, climbing 0.9% despite earlier dips, showcasing resilience from prominent tech firms such as Microsoft and Nvidia amid tariff impacts.
European markets also encountered sharp declines, with Germany’s DAX index plummeting by 3.5%, largely affected by heavy losses among automakers. Asian markets showed more moderate declines as investors reacted to news from the United States. The ongoing downturn nearly nullified gains witnessed since President Trump’s election in November, a time when expectations for economic strengthening were high.
Rising tariffs are triggering negative forecasts from retailers like Target and Best Buy. Despite exceeding Wall Street’s earnings expectations, Target reported anticipated “meaningful pressure” on profits while Best Buy’s shares plummeted by 12.1% following an uninspiring earnings outlook. Best Buy’s CEO, Corie Barry, remarked on the critical nature of international trade to their business, highlighting potential price surges for consumers as vendors shift additional costs forward.
Import taxation has significantly increased, with Canadian and Mexican goods taxed at 25%, and a 10% duty imposed on Canadian energy goods. The previous 10% charge on Chinese imports has now escalated to 20%. In response to U.S. tariffs, China announced additional tariffs of up to 15% on numerous U.S. agricultural products, alongside restrictions on American businesses.
As firms within the S&P 500 conclude their quarterly earnings reports, there is an observed overall growth of 18% for the fourth quarter. However, Wall Street has since reduced its outlook for growth in the current quarter to approximately 7%, down from earlier expectations exceeding 11%. Concurrently, indications of consumer pessimism towards inflation are beginning to influence spending patterns, critical to economic expansion.
In anticipation of monetary policy adjustments, Wall Street hopes for continued interest rate reductions by the Federal Reserve in 2025. However, the Federal Reserve has recently expressed caution due to uncertainties wrought by tariffs on economic performance. Despite having previously raised interest rates to a two-decade high to manage inflation, they recently began lowering rates as inflation approached target levels; nonetheless, it remains slightly above that mark.
Within the bond market, Treasury yields varied, with the 10-year Treasury yield rising to 4.21%. This increment contrasts with recent highs nearing 4.80%. Investor concerns surrounding the economy’s stability have led to volatility in bond values, as noted by Sam Stovall, chief investment strategist at CFRA. The two-year Treasury yield remained consistent at 3.94%.
In summary, Wall Street’s ongoing decline, driven by trade tensions and tariff implications, has effectively erased all post-election gains for major indices like the S&P 500 and Dow Jones. As retailers highlight profit pressures due to rising costs, projections for economic growth are being revised downward. Concurrently, the Federal Reserve’s cautious stance on interest rates adds further complexity to the economic landscape. Overall, the interplay of tariffs, international trade dynamics, and corporate earnings reports present a challenging environment for investors.
Original Source: www.therepublic.com
