US Stocks Volatile as Trump’s Tariff Threats Rattle Markets
US stocks experienced significant volatility on Monday as President Donald Trump’s tariff threats against Mexico, Canada, and China sent shockwaves through financial markets. Initial reactions saw steep losses for major stock indexes and cryptocurrencies, while the dollar and oil saw gains. However, by the end of the trading day, many of the sharpest market movements had been reversed.
The S&P 500 plunged to a low of 1.9% before staging a 1.2% intraday rally, ultimately closing 0.76% lower. Similarly, the Nasdaq Composite saw a decline of 2.4% at its lowest point but managed to recover 1.3% intraday, ending the session down 1.2%. Bitcoin, which had dropped 10% over the weekend, surged 9.7% on Monday, closing up about 3% and reclaiming the $100,000 level.
Investor concerns centered around fears that tariffs could harm economic growth and lead to inflation, potentially causing a stagflationary environment. However, risk assets rebounded after a positive phone conversation between President Trump and Mexican President Claudia Sheinbaum, which resulted in a one-month delay of Mexico tariffs.
In response to Trump’s tariff threats, Mexico agreed to deploy 10,000 troops to the Mexico-US border to address the flow of illegal fentanyl, a key issue highlighted in Trump’s executive order. The order emphasized holding Mexico, Canada, and China accountable for stopping illegal immigration and drug trafficking.
Investors are now closely watching developments with Canada, as tariffs are set to take effect at midnight on Tuesday. Canadian Prime Minister Justin Trudeau and President Trump were expected to continue discussions, with hopes for a similar delay or resolution.
Wall Street consensus suggests that tariffs on Mexico and Canada may be temporary if implemented, as concessions are seen as a more favorable solution. Analysts at Bank of America predict potential tariffs against Mexico and Canada will be short-lived, but the 10% tariff on China may be permanent.
The broader economic impact of these tariffs remains uncertain, with investors adopting a wait-and-see approach similar to the 2018 tariff situation. Historical context shows that the economic impact of tariffs is challenging to model, with significant market reactions often occurring only after the effects are felt.
As markets continue to digest these developments, traders and investors remain cautious, balancing the potential risks and opportunities presented by the evolving trade landscape.