Equities and Dollar React to Trump's Tariff Announcement

Stocks Soar, Dollar Weakened as Trump Plans Reciprocal Tariffs

Key Insights:

* All S&P 500 sectors advanced, with the index rising 1%.
* US dollar declined against major developed-market currencies.
* Treasury yields rebounded after their worst decline since December.
* Big tech outperformed, with Tesla and Nvidia rallying over 3%.

Reciprocal Tariffs

President Donald Trump has directed the US Trade Representative and Commerce Secretary to propose reciprocal tariffs on a country-by-country basis. However, the process could take time to complete, leaving the door open for negotiation.

Analysts view the decision to avoid immediate tariff implementation as a potential opening bid for negotiations, similar to Trump's strategy with Mexico and Canada.

Economic Data

* Producer price index rose in January, but components used in the Fed's preferred inflation measure (PCE) showed favorable declines.
* Next PCE release scheduled for February 28.

Market Performance

* S&P 500 exceeded 6,100.
* Nasdaq 100 gained 1.4%.
* Dow Jones Industrial Average rose 0.8%.
* Bloomberg Magnificent Seven Total Return Index climbed 1.8%.
* Russell 2000 advanced 1.2%.
* Applied Materials Inc. provided a modest revenue forecast.
* Airbnb Inc. issued an optimistic outlook.
* 10-year Treasury yield fell nine basis points to 4.53%.
* Bloomberg Dollar Spot Index lost 0.7%.
* Yen gained 1.1% on safe-haven appeal; Canadian dollar reached a new high for the year.

Long-Term Dollar Outlook

Despite the greenback's decline, a positive long-term view remains. Dollar strength is seen as favorable for domestic equities over international and emerging markets.

A weaker dollar benefits equities in general and historically has been a tailwind for emerging markets.

Cautionary Signals

Goldman Sachs' Scott Rubner warns of a looming bearish trend for US equities, citing crowded markets and dwindling dip-buying momentum.

Corporate Highlights

* Applied Materials Inc. predicts moderate revenue for the current period due to potential export controls.
* Airbnb Inc. forecasts strong Q1 2025 demand, following a robust holiday travel season.
* Coinbase Global Inc. reports strong revenue and profit growth during the recent crypto rally.
* Alibaba Group Holding Ltd.'s AI technology will be used in Apple Inc.'s iPhones.

Key Events

* Eurozone GDP (Friday)
* US retail sales, industrial production, business inventories (Friday)
* Fed's Lorie Logan speech (Friday)