US Markets Drop on Trump's Surprise Tariff Move
Investors' skepticism towards President Trump's tariff threats has proved unfounded, leading to a sell-off in markets. Nasdaq 100 futures (NQ=F) plummeted over 1.7%, S&P 500 futures (ES=F) dropped approximately 1.5%, and Dow Jones Industrial Average futures (YM=F) fell by around 1.3%.
Analysts had previously underestimated the risk of Trump imposing tariffs, despite his repeated statements. "My sense is tariffs are coming," said Neil Shearing, chief economist at Capital Economics Group. "But I don’t think they’ll be quite on the same scale that the president has talked about...for obvious reasons...it would tank the market."
Betting markets also misjudged the likelihood of tariffs, with Polymarket predicting only a 20% chance of 25% tariffs on Canada and Mexico.
Morgan Stanley strategists believe "fully implemented tariffs with staying power don’t appear to be in the price of key markets." They warn of potential pressure on US equities and outperformance of services over consumer goods.
Negotiations between the affected countries remain ongoing, leaving open the possibility of avoiding full-scale tariffs. However, the weekend's announcement has sparked concern about market volatility and policy uncertainty.
Goldman Sachs' David Kostin warns of "downside risk" to S&P 500 earnings forecasts due to tariffs. He estimates a potential 5% downside in fair value if investors anticipate sustained implementation.
According to Kostin, investor perception of the tariffs' duration will determine their impact on the equity market. Short-lived tariffs aimed at negotiation could minimize the effect, while extended escalation would trigger further declines.