Trump Tariffs Hit Corporate Profits, Fuel Inflation Fears
As President Donald Trump imposes tariffs on major trading partners, investors brace for a blow to U.S. corporate earnings and inflationary pressures.
Trump's executive order levies a 25% tariff on goods from Mexico and Canada, and a 10% tariff on imports from China, scheduled to take effect on Tuesday. The order also includes provisions for escalating tariffs if retaliation occurs.
Analysts estimate that the tariffs could reduce S&P 500 company earnings by 2.8%, with potential retaliatory measures further impacting profits. Goldman Sachs warns of a 0.7% rise in core inflation and a 0.4% hit to GDP.
Investors fear that higher consumer prices may prompt the Federal Reserve to halt interest rate cuts. The central bank recently paused its rate-cutting cycle, citing uncertainty over new policies under the Trump administration.
Market observers anticipate a selloff in stocks and other risky assets on Monday. The S&P 500, near all-time highs, could experience a 3-5% swing in either direction.
"This is an unpredictable geopolitical event that markets will react to," said Colin Graham of Robeco. "We'll have to assess the impact as it unfolds."