(Reuters) -Major stock indexes fell in volatile trade on Tuesday, with the Nasdaq Composite index at one point down 10% from its December record high, while Treasury yields also seesawed as the United States hit Canada, Mexico and China with steep tariffs.
The tariff move by U.S. President Donald trump fueled investor worries about the impact on the economy, and also weakened the dollar as investors moved into safe haven Treasuries, pushing yields lower.
The Dow Jones Industrial Average unofficially closed down 1.63%, the S&P 500 down 1.3% and the Nasdaq Composite, down 0.34%.
The 10-year Treasury yield was last up 3 basis points at 4.21%, after falling to 4.106% overnight, its lowest since October. The dollar index fell 0.83%.
COMMENTS
ROBERT RUBIN, SENIOR COUNSELOR, CENTERVIEW PARTNERS, FORMER SECRETARY OF THE US DEPARTMENT OF THE TREASURY (at an investment conference in New York)
“We have treaty obligations with Canada and Mexico … What does that do to our credibility around the world?”
“I think in terms of the long run for us, I think it (tariffs) means less productivity.”
‘“I think there’s a new normal of irrationality” that is not going to be helpful to the U.S. economy.
“Trump’s tit-for-tat approach has heightened fears of a global trade war, pressuring risk assets while boosting safe-havens. Tariffs have long been seen as USD-positive due to U.S. exceptionalism, but growing concerns over U.S. economic strength are shifting the narrative. With 10Y yields falling and market expectations for Fed cuts rising from two to three in 2025, the dollar is facing renewed pressure.
“Despite broad USD weakness over the past two days amid the tariff backdrop, the U.S. dollar has gained against the Canadian dollar and Mexican peso - both direct tariff targets - while safe-haven currencies like the Swiss franc and Japanese yen have strengthened. Investors are left questioning whether Trump’s tariffs are a negotiating tactic or the start of a reciprocal trade war, and how long they will persist in either scenario.”
CHRIS GALIPEAU, SENIOR MARKET STRATEGIST, FRANKLIN TEMPLETON INSTITUTE, BOSTON, MASSACHUSETTS
“Equities came under renewed pressure yesterday as President Trump confirmed tariffs are going into action on Canada and Mexico along with a slightly weaker Manufacturing PMI report for February. Bond yields declined to 4.16% on economic slowdown fears and the message coming from Washington DC.
“Under the surface, the equal weight S&P 500, which negates the market cap impact on returns, outperformed the traditional cap weight S&P 500 by 67bps yesterday and is now 2% ahead of the cap weighted S&P 500 year to date. This is a trend that has been underway for 8 months and a trend we expect to continue as the momentum unwind continues.
JIM BARNES, DIRECTOR OF FIXED INCOME AT BRYN MAWR TRUST, BERWYN, PENNSYLVANIA
"Before, you would have the inflationary impact at some point being incorporated in yields, but today it's purely on the short end and the long end it's a weak economy story and it's a rate cut environment story, so both of those. And it doesn't necessarily have to be, but today that's how the market's trading totally on a weak economy, and slower, and more rate cuts. The inflationary impact that could come along with the tariffs, the investors are kind of pushing that to the sideline and they're not trading on that."
JASON GOLDBERG, BANK ANALYST, BARCLAYS
"Tariffs introduce an element of uncertainty that can affect the largest banks, weighing on loan demand, for example, or reducing expected revenues with capital markets transactions when markets become too volatile. "
"The tariffs' impact on economic growth and interest rates is what markets are trying to estimate now, I think their magnitude will depend on how long the policy stays in place".
“Tariffs are a tool, dusted off in 2016, after collecting dust for over a hundred years. A tool is neither good or bad until you know what it is used for. You might think a hammer is bad because of who is holding it, and you might think a tariff is bad because of who is using it. We have to wait and see the real impacts.
“The last time tariffs were widely used, global trade looked completely different - countries imported and exported entirely different raw materials and goods. Tariffs could be a terrible policy mistake, leading to anti-free trade (if you like that perspective), or it could be necessary economic medicine to bring back manufacturing to the U.S. and negotiate better terms for the U.S. (if you like this one).
GENE GOLDMAN, CIO, CETERA FINANCIAL GROUP, SAN DIEGO, CA (emailed reply)
“Looming tariffs and weakening economic data sent U.S. equities spiraling lower on Monday, as the S&P 500 lost 1.76%, the tech heavy NASDAQ lost 2.64% and the small cap focused Russell 2000 lost 2.81%. Declines have continued this morning. President Trump said that 25% tariffs on Mexico and Canada are set to begin today.
“According to reports, he also signed an order to increase Chinese tariffs by 10% to a total of 20%. President Trump said he is using tariffs as leverage to secure the borders and prevent the flow of drugs into the United States. Canada and China have vowed to retaliate with tariffs of their own. All these tariffs create a lot of uncertainty as investors try to understand the size and scope of them which now depends in large part on how they are implemented.
“While tariff news was front and center, there were additional catalysts sending stocks lower including weak economic readings on the manufacturing sector that also showed a sharp rise in pricing pressures. The combination of slowing economic growth and potentially rising inflation worried investors. February’s ISM Manufacturing Index fell slightly below consensus and is teetering on contraction. More importantly, the forward-looking component of this index, new orders, saw a sharp drop and did fall into contraction. The prices index spiked, and the employment index fell. Overall, it was not a good report for investors. Adding to the sentiment, construction spending in January unexpectedly declined. These reports only added to jitters from the previous weeks that saw weak consumer surveys and has many questioning if a recession could be looming. The Atlanta Fed publishes a model forecasting GDP in real-time and estimates for first quarter GDP growth fell to -2.8% with the new economic data inputs. We do warn this model can be widely inaccurate this far in advance and volatile.
“The Blue Chip economic consensus for first quarter GDP growth is much higher and above 2%. It is easy to get lost in the data and not see the forest for the trees. Overall, the big picture is that economic growth appears to be slowing, and tariffs are only compounding this and creating more uncertainty. Tariffs are being used as a negotiation tactic, so assuming concessions are met, they could change quickly. The impact is also uncertain as the implementation will dictate the size and scope. A potential government shutdown and government job cuts also contribute to slower growth concerns. All this is on top of already high valuations in large cap stocks. Valuations have been stretched on prospects of artificial intelligence fueled growth. With mounting risks, investors may finally be taking profits and shifting to other parts of the market that are less frothy like value and international stocks.
“A lot of what we are seeing was laid out in our 2025 market outlook - economic growth will moderate, and the Fed is likely to cut rates less than markets expected. While economic growth appears to be slowing, we are not expecting a recession around the corner as the labor market remains solid. The Fed is also less likely to cut interest rates as inflation remains sticky and now faces additional price pressures. The last part of our 2025 market outlook, diversification is back, is a key strategy to navigate this uncertainty.
“A correction, or a 10% pull back from the peak, is possible and could take the S&P 500 down to the 5500 level. However, keep in mind that corrections typically occur about once a year on average and the S&P 500 hasn’t seen a correction since October 2023. We think it is prudent to be well diversified to mitigate risk. It is important to stay focused on your own long-term financial goals and avoid getting caught up in the market enthusiasm or trying to call the next bear market.”
ADAM SARHAN, CHIEF EXECUTIVE, 50 PARK INVESTMENTS, NEW YORK
"The last time we had, you know, protectionism and tariffs was in the 1930s and 40s and now we're in a situation where investors aren't sure what's going to happen, but they are selling and they're doing their best to make sure that whatever they do is going to be good for them. This is pretty much unprecedented territory.
"If there is a concern that the trade war is going to cause the economy to slow down, that's not good for banks or transportation stocks.... banks and transportation stocks make money when there's more goods and services traveling through the economy."
BRIAN DAINGERFIELD, FOREIGN EXCHANGE STRATEGIST, NATWEST MARKETS, NEW YORK
"This tariff reaction, I think, is certainly surprising. We've seen the dollar weakened but I think this reflects markets' assumptions about how the tariffs will have a negative impact, not just on external growth, but how it could potentially have a negative impact on U.S. growth."
(Compiled by the Global Finance & Markets Breaking News team)
