US Stocks Fall as Markets React to Trump's Tariffs
US stocks declined on Monday due to President Trump's announcement of tariffs on China, Mexico, and Canada. However, the market losses were partially recouped after Trump delayed the implementation of tariffs against Mexico for one month.
The tech-heavy Nasdaq Composite (^IXIC) closed down around 1%, regaining half of its earlier losses. The S&P 500 (^GSPC) fell approximately 0.6%, and the Dow Jones Industrial Average (^DJI) declined 0.31%. Consumer discretionary stocks and tech shares led the initial market slide.
Initially scheduled to take effect on Tuesday, the tariffs include 25% duties on Canada and Mexico and 10% on China. Mexico's president and Trump agreed to pause the tariffs for one month while negotiations take place.
The US dollar index (DX-Y.NYB, DX=F) declined after surging to its highest level in two years.
Brent crude futures (BZ=F) were largely unaffected, following a surge of over 2%.
Prime Minister Justin Trudeau stated that Canada will impose 25% counter-tariffs on approximately $107 billion of American products. Trump plans to have further discussions with Trudeau.
According to Claudio Irigoyen of Bank of America, the tariffs may be intended as leverage for negotiations on a revised US, Canada, and Mexico trade agreement.
Others on Wall Street suggest that the tariffs targeting Canada and Mexico may be short-lived, possibly temporary.
Tom Lee of Fundstrat argues that the market may be overreacting, especially given the potential benefits of resolving the conflict.
Bitcoin (BTC-USD) rebounded after Trump delayed the tariffs against Mexico, erasing losses of up to 4%.
In manufacturing, the Institute for Supply Management's PMI indicated an expansion for the first time in over two years, with a reading of 50.9 for January.
RBC Capital Markets analyst Lori Calvasina notes that market participants may have underestimated the risk of the tariffs being more than negotiation tools.
Goldman Sachs warns that sustained tariffs could lead to a 5% drop in S&P 500 earnings and potentially decrease its fair value.
Hong Kong-listed Chinese stocks outperformed Asian peers thanks to a rally in Alibaba and SMIC shares.
European stocks declined as investors fear tariffs on EU imports to the US. Automaker stocks, sensitive to tariffs, led the sell-off.
Asian markets saw significant losses as investors reacted to the tariff announcement. China's Ministry of Commerce has called for negotiations to avoid larger tariff hikes and tech restrictions.