U.S. Stocks Stumble Amid Tariff Threats, Overshadowing Positive Inflation Data
U.S. stock markets opened sharply lower on Thursday, as renewed tariff threats from the Trump administration once again rattled investor sentiment and overshadowed otherwise encouraging inflation news. The specter of escalating trade wars, particularly with Europe and Canada, has injected significant uncertainty into the market, leading to a risk-off sentiment among traders.
President Trump’s latest salvo involved a proposed imposition of 200% duties on European alcoholic beverage imports, including wine, if the European Union fails to remove surcharges on U.S. whiskey. This threat follows earlier pronouncements that the U.S. would penalize the bloc should it enact retaliatory tariffs on American goods in the coming month.
The back-and-forth nature of Trump’s tariff policies has become a major source of volatility for the market. Earlier in the week, the potential for a trade war intensified when Trump threatened to double the tax on Canadian aluminum and steel to 50% in response to Canada’s 25% duty on some of its electricity exports to the U.S. This tit-for-tat exchange sent markets into a tailspin, although some ground was recovered after Canada relented. Subsequently, Trump also backed down, averting an immediate trade war, but the damage to investor confidence was already done, resulting in all three major stock indexes closing lower on that rollercoaster day.
At 9:09 a.m. ET, the broad S&P 500 index experienced a dip of 0.5%, or 27.80 points, settling at 5,571.50. The blue-chip Dow Jones Industrial Average eased 0.29%, or 120.17 points, to 41,230.76, while the tech-heavy Nasdaq Composite Index fell more significantly, dropping 0.97%, or 171.26 points, to 17,477.19. The benchmark 10-year Treasury yield edged up to 4.339%.
These early losses on Thursday put the S&P 500 and Nasdaq on track for a weekly drop of approximately 3%. The Dow Jones Industrial Average is poised for a steeper decline, off 3.4% for the week, potentially marking its worst week since March 2023. The S&P 500 index briefly dipped into correction territory on Tuesday, a correction being defined as a decline of at least 10% from a record high. The S&P 500’s record high was set in February.
The constant barrage of tariff-related news has largely overshadowed other significant economic data, including encouraging signs of softening inflation. February’s producer price index (PPI), which measures the cost of producing consumer goods, remained flat, deviating from expectations of an increase. This follows Wednesday’s release of a softer-than-expected February consumer price index (CPI), both of which collectively help alleviate concerns about the overall direction of the economy and the potential impact that tariffs could have on inflation.
Eugenio Aleman, chief economist at Raymond James, commented on the situation, stating that even if tariffs were to impact inflation, the underlying disinflationary trend remains intact. He emphasized that this trend is highly positive for the Federal Reserve and for their rate expectations for the remainder of the year.
In addition to trade concerns and inflation data, a funding bill in the U.S. Senate aimed at keeping the government running through September 30 is also lingering in the background. With only one day remaining before a potential partial government shutdown, the pressure is on for lawmakers to reach an agreement.
The Republican-controlled House of Representatives had previously passed the bill earlier in the week. However, Democrats in the Senate had called for a one-month extension of existing spending measures, seeking to buy additional time to complete more comprehensive appropriations bills for the year. Despite this initial stance, reports emerged on Thursday morning suggesting that Senate Democrats were prepared to back down, potentially paving the way for the funding bill’s passage.
A government shutdown would have significant consequences, potentially leading to some federal employees missing their paychecks and disrupting various government services.
In the cryptocurrency market, Bitcoin prices experienced a slight pullback, giving back some of the gains made on Wednesday following the release of the softer-than-expected consumer inflation data. However, the digital currency remains above the key psychological level of $80,000. Bitcoin was last trading down 2.44% at $81,659.14.
The stock market’s reaction to the tariff threats underscores the sensitivity of investors to trade policy and its potential impact on economic growth. While inflation data provided some reassurance, the uncertainty surrounding trade relations continues to weigh heavily on market sentiment. The coming days will be crucial in determining whether lawmakers can reach a consensus on government funding and whether the U.S. and its trading partners can de-escalate trade tensions, preventing further market volatility. The market is walking on eggshells awaiting the next tit for tat.
