Tariff Delay Supports Markets

The S&P 500 index managed to trim its losses during Monday’s session,
driven by growing investor optimism following the postponement of new U.S. tariff impositions.

Contents

Introduction
Market Indicators
Trump’s Escalation
Tariff Impact
Market Reactions
Market Conditions
Investor Expectations
Trade Risks
Stock Movements
Fed Strategy
Economic Outlook

Introduction

Markets experienced sharp fluctuations amid ongoing concerns over the impact of trade tensions between the United States and its partners, particularly Canada and Mexico. However, reports suggesting potential negotiations to ease trade restrictions helped calm investor worries, leading some back into the market.

At the same time, the U.S. dollar remained stable against major currencies, while U.S. Treasury yields recorded a slight decline, reinforcing expectations that the Federal Reserve may intervene to support the economy if necessary.

Market Indicators

Markets remain on edge, awaiting any developments regarding U.S. trade policies, with investors looking for further statements from the White House on the possibility of renegotiating tariffs.

In this context, Victoria Greene, Wealth Manager at G Squared, commented:
“The situation is constantly evolving. Our core belief is that many of these tariffs are temporary and could be eased through agreements and concessions from affected nations. We are closely monitoring developments and their effects on markets, corporate earnings, and the U.S. dollar.”

Trump’s Escalation

Some analysts believe that delaying tariffs reinforces the idea that Trump is using them as a negotiation tool, while also avoiding significant economic harm to American consumers.

However, his declaration of a trade emergency and the imposition of new tariffs on Canada, Mexico, and China represent the largest protectionist move by a U.S. president in nearly a century.

Tariff Impact

The biggest concern is whether the U.S. economy can withstand the effects of a potential trade war. This uncertainty has been reflected in the bond market, where short-term Treasury yields have risen, while long-term yields have declined, signaling investor worries about economic stability.

Young-Yoo Ma, of BMO Wealth Management, stated:
“We believe tariffs are primarily a negotiation tool for President Trump, but it is difficult to determine whether they will remain temporary or become a lasting policy.”

He added: “Patience is key, and investors should seize opportunities carefully. Now is not the time for bold investment moves.”

Market Reactions

Market Conditions

UBS’s tariff-exposed stock basket fell 3.1%.
The Wall Street volatility index (VIX) climbed above 18 points.
10-year U.S. Treasury yields remained largely unchanged at 4.53%.
The Bloomberg Dollar Index rose 0.1%.
The Mexican peso gained 1.8%, while the Canadian dollar strengthened 0.9%.

Commenting on the market situation, Jeff Rubin of Bernini Associates stated:
“Given the current uncertainty, we are not making any drastic portfolio adjustments,
but we are also hesitant to inject new capital into the market until the situation becomes clearer.”

Tariff Delay Supports Markets

Investor Expectations

According to David Lefkowitz of UBS Wealth Management, tariff announcements have fueled market volatility, but he emphasized:
“In our base-case scenario, we do not believe the Trump administration will take measures that significantly impact economic growth or corporate earnings.”

Trade Risks

David Kelly of JPMorgan warned that an ongoing trade war could lead to stagflation, increasing inflation and interest rates while negatively impacting economic growth and earnings.

Meanwhile, José Torres of Interactive Brokers stressed that trade stability is essential for sustaining economic growth, warning that escalating trade disputes could impact corporate revenues and profit margins.

Stock Movements

Goldman Sachs analysts predict that extended tariff measures could trigger a 5% decline in U.S. stocks in the coming months.
If tariffs persist, S&P 500 earnings could drop between 2% and 3%, potentially lowering stock valuations.
RBC Capital Markets analysts suggest that tariffs on Mexico, Canada, and China could lead to a 5% to 10% correction in the S&P 500 this year.

Fed Strategy

Michael Wilson, Chief Strategist at Morgan Stanley, noted that markets have not yet faced a real test regarding tariffs but warned that this perception could change over time.

Meanwhile, data from Goldman Sachs indicated that hedge funds continued selling U.S. equities for the fifth consecutive week, while retail investors bet that Trump would avoid an economic shock from aggressive tariffs.

Economic Outlook

Uncertainty continues to loom over markets, with the fate of stocks hinging on the next developments in the U.S. trade war with its key partners.

Tariff Delay Supports Markets

Tariff Delay Supports Markets

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