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Trade war hits markets

Two weeks ago I wrote a column titled “The stock market isn’t convinced Trump is serious about tariffs.”

I argued in the piece that investors were acting like the president was bluffing. The S&P 500 had just hit a record high, volatility was low, and no one blinked when Trump signed off on reciprocal tariffs.

That was then.

Monday just delivered the S&P 500’s worst day of the year, and markets have recalibrated for a different reality — tariffs may not be merely tough talk after all.

Trump confirmed that 25% tariffs on imports from Canada and Mexico would take effect Tuesday. Once he confirmed that it was too late to get a deal done, each of the major equity benchmarks tanked, while bitcoin also saw a 9% drop.

Bitcoin, the S&P 500, and the Dow are all hovering below where they traded at before Trump entered office for his second term. The Nasdaq 100 is up 0.22%.

“No room left for Mexico or for Canada,” Trump said from the White House.

He also signed into action a fresh 10% levy on China Monday.

It was only a handful of trading sessions ago that traders largely viewed tariffs as a negotiation tactic. A bargaining chip he’d discard for concessions.

Trump squashed that perception Monday. The levies are not a bluff.

Now, there’s something to be said about re-shoring manufacturing, production and jobs to the US. As a long term strategy it doesn’t sound outrageous.

But it’s not exactly an overnight process either.

More immediate concerns include rising costs for businesses, tighter margins and pressure on earnings — all of which weighs on both consumers and investors.

Meanwhile, the Atlanta Fed’s GDP estimate for the first quarter collapsed from above 2% to nearly -3% within the last several days, underscoring the potential economic hit.

“President Trump’s trade proposals are for tariffs to raise tax revenue while also boosting the competitiveness of US made products and to incentivize the re-shoring of manufacturing activity to the US,” said ING chief international economist James Knightley.

“However, the stop-start, will he-won’t he nature of tariffs is creating uncertainty with manufacturers seemingly concerned about the trading environment they will find themselves in.”

Veteran strategist Dave Rosenberg, founder of Rosenberg Research, argues that without tariff fears, the Fed would already be cutting interest rates.

“In the end,” Rosenberg said, “the negative macro effects from the global trade war will overwhelm the early inflationary impact, and as we saw in 2019, the longer Powell waits, the more he will eventually need to do.”

Remember, coming into Trump 2.0 markets rallied on upbeat expectations for deregulation, tax cuts, and a pro-business White House.

The bull market, the thinking went, could handle a little trade war.

Now that the war is on, stocks are in the red.

Comments or feedback? Reply directly to this email or let me know on X @philrosenn.

Market snapshot

Elsewhere:

📉US manufacturing slowed in February. The Institute for Supply Management’s manufacturing PMI registered at 50.3 for the month, down from the 50.9 seen in January and below what economists expected. Separate data showed company costs continued to climb last month. (Yahoo Finance)

📊 Farming-related stocks tumbled Monday. That’s another market move tied to Trump’s tariff announcements. The president said farmers should get ready to make a lot of agricultural product “to be sold INSIDER of the United States.” Shares of Deere, CNH Industrial, FMC< and Corteva dropped. (Barron’s)

🪖 US weapons aid to Ukraine is slowing. Military financing has been stopped and officials are considering other types of assistance tied to weapons. This follows a tense exchange Friday between Presidents Trump and Zelensky, which led the former to say that the latter should be “more appreciative.” (WSJ)

🎙️My conversation with the New York Stock Exchange. I spent an afternoon at the global financial hub to discuss the AI boom and how it relates to the dot-com era, the state of crypto, and building a financial media company. (YouTube)

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About me:

📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day, unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else. Feedback? Write me at phil@openingbellmedia.com, reply directly to this email, or ping me on X @philrosenn.