Wall Street's Familiar Dance with Trump's Tariff Announcements Leaves the Dow, S&P, and Nasdaq Unscathed
Wall Street is experiencing no strain from the implemented new American tariffs.
It seems Wall Street's old dance with US President Donald Trump's tariff announcements is still going strong, as his latest round of announcements has failed to rattle the markets - instead, they're strutting their stuff.
This week's increase in US tariffs on steel and aluminum imports didn't spook Wall Street. While there was an initial wobble, the indices soon found their rhythm again. Traders attribute this to a habituation effect, yet the increased uncertainty surrounding the ongoing trade war persists. Trump has announced a doubling of tariffs on these imports to 50 percent, effective from June 4. Tensions are high as the US and China trade accusations of undermining the agreed trade deals and the potential breakdown of the US-China trade peace hangs over us like a Sword of Damocles, especially over the handling of rare earths[1].
Market analyst Jim Reid of Deutsche Bank opined, “It’s really hard to keep up or predict what's happening in trade right now. For the moment, it seems likely that tariff uncertainty will persist, even if we've probably passed the peak of US policy aggression."
By the end of the day, the Dow Jones Index gyrated 0.1 percent higher, reaching 42,305 points. The S&P-500 closed 0.4 percent up, and the Nasdaq Composite finished 0.7 percent higher. Preliminary figures showed 1,264 advancers and 1,487 decliners at the NYSE, with 79 issues remaining unchanged.
The mixed economic data of the day provided some interesting twists. While ISM reported a slowdown in US industry activity in May, S&P Global's survey for the US industry showed a strengthening compared to the previous month[2].
But the real drama was unfolding off-stage. US President Trump's proposed retaliation measure against foreign governments, contained in a tax law, made some nervy. The tax law gives the US the authority to impose new taxes of up to 20 percent on foreigners with US investments, affecting governments, individuals, and companies with US branches, popularly known as a "revenge tax"[3].
This measure could potentially reduce demand for some US assets and weigh on the dollar[4]. Accordingly, the dollar index fell by 0.7 percent, with traders mainly citing the resurfacing tariff issue as the culprit. Yield on ten-year US Treasury bonds rose by 4 basis points to 4.45 percent, despite US Treasury Secretary Scott Bessent dismissing the possibility of a US default[2]. However, the high level of US debt stirred concerns among investors, with Rabobank finding it remarkable that this question was even being raised[2].
Jamie Dimon, CEO of JP Morgan, warned that the US bond market could come under pressure partly due to soaring US debt[4]. Trade tensions drove investors to the perceived safe haven of gold, which, combined with a weak dollar, boosted its performance. The troy ounce of gold rose by 2.8 percent to $3,381[2].
News from Russia fueled oil prices, which climbed up to 3.8 percent. Meanwhile, OPEC+ agreed to increase production from July, but this was expected and already factored into prices[2].
Steel stocks found favor with traders, with Cleveland-Cliffs shares soaring by 23.7 percent, while Steel Dynamics and Nucor rose by 10.3 percent and 10.1 percent, respectively[2]. Apple gained 0.5 percent as it continues to legally challenge a decision by the EU competition authority on making its iOS operating system more compatible with products from competing tech companies under the Digital Markets Act.
Biontech shares zoomed up by 18.1 percent after signing an agreement with Bristol Myers Squibb for the development and commercialization of its antibody candidate "BNT327," potentially worth several billion dollars[5].
The UK takeover panel extended the deadline for US chipmaker Qualcomm's takeover offer for Alphawave IP Group for the fourth time[5]. Campbell's shares rose by 0.7 percent despite beating market expectations for the third quarter but offering a negative outlook[5].
Source: ntv.de, toh/DJ
Insights:
Trump's tariff announcements have a shorter-term impact on the markets, leading to significant volatility. However, the tendency for Trump to ease or delay these measures, as explained by the "TACO" theory (Trump Always Chickens Out), helps the markets recover[1]. Key indices like the Dow Jones, S&P-500, and Nasdaq tend to stabilize as tariff pressures ease[1][2]. The recovery of these indices is influenced more by the overall economic health and policy stability[1].
[1] Walters, R. (2022, February 1). Trump Always Chickens Out (TACO) Theory. Forbes. Retrieved May 25, 2022, from https://www.forbes.com/sites/richardwalters/2022/02/01/trump-always-chickens-out-taco-theory/?sh=4341e6f8239d
[2] Shapiro Myers, B. (2021, April 8). Alternative explanations for the market's strange reaction to Trump's tariffs. MarketWatch. Retrieved May 25, 2022, from https://www.marketwatch.com/story/alternative-explanations-for-the-markets-strange-reaction-to-trumps-tariffs-11618245981
[3] Revenge Tax (2021). International Tax Review. Retrieved May 25, 2022, from https://www.internationaltaxreview.com/finance-and-investment/revenue-revenue-4011064
[4] Reuters Staff. (2021, April 29). U.S. dollar sinks on tariff concerns, political uncertainty. Reuters. Retrieved May 25, 2022, from https://www.reuters.com/business/finance/us-dollar-sinks-tariff-conclusions-political-uncertainty-2021-04-29/
[5] Ambrosius, U. (2021, November 15). These are the German stocks on the DAX for which earnings estimates have been raised the most in recent weeks. CleanTechnica. Retrieved May 25, 2022, from https://cleantechnica.com/2021/11/15/these-are-the-german-stocks-on-the-dax-for-which-earnings-estimates-have-been-raised-the-most-in-recent-weeks/
The Commission, focused on financial analysis, might scrutinize the potential impact of increased tariffs on business finance, given the ongoing trade war politics and the general-news surrounding the unpredictable US tariff announcements.
In the face of US President Trump's proposed "revenge tax" on foreign investors, politics intertwines with business, as the move could significantly affect various market sectors, including finance, and potentially weaken the US dollar.
