Wall Street swung between sharp and more modest losses on Monday as stock markets worldwide sank on concerns that Donald Trump’s tariffs could ignite a punishing trade war.
The S&P 500 was down 0.4% in late trading after Asian and European indexes logged worse drops. The Dow Jones Industrial Average was down 6 points, or less than 0.1%, with a little less than an hour remaining in trading, and the Nasdaq composite was 0.8% lower.
The US stock market had been on track for a much worse loss with the Dow down 665 points shortly after the start of trading, on worries about how much pain US companies would feel because of the tariffs.
Some of the heaviest losses hit Big Tech and other companies that could be hit most by the higher interest rates that could result from the US tariffs announced on imports from Canada, Mexico and China.
But US stocks pared their losses after Mexican President President Claudia Sheinbaum said tariffs on her country’s goods are on hold for a month after a conversation with Mr Trump.
The ultimate fear is that the US president’s tariffs will push up prices for groceries, electronics and all kinds of other bills for US households, putting upward pressure on a US inflation rate that has largely been slowing since its peak three summers ago.
Stubbornly high or accelerating inflation could keep the Federal Reserve from cutting interest rates, which it began doing in September to give the economy a boost.
Much of Wall Street had been hoping Mr Trump’s talk of tariffs through the presidential campaign was just talk, and an opening point for negotiations with US trading partners.
Traders came into Monday morning thinking Mr Trump had followed through, raising fears of an escalating trade war that would damage economies worldwide, including the US.
That pushed traders to quickly pare expectations for how many cuts to interest rates the Fed may deliver this year, if any. Lower interest rates can encourage US employers to hire more workers, while also boosting prices for investment, but the downside is they can give inflation more fuel.
Crude oil prices swung sharply on Monday. The price for a barrel of benchmark US crude topped 74.50 dollars in the morning before pulling back towards 73 dollars after Mexico’s announcement of the pause on tariffs.
Mr Trump warned Americans they may feel “some pain” from the tariffs, which he said would be “worth the price” to make America great again. He also said on Sunday night that import taxes will “definitely happen” with the European Union and possibly with the UK as well.
Some on Wall Street remain sceptical about how long a trade war may last, especially considering how closely Mr Trump pays attention to the stock market. An escalating trade war can cause sharp drops on Wall Street, as Monday morning quickly demonstrated, and “significant stock market volatility could lead to a change in approach”, said Solita Marcelli, chief investment officer foe the Americas at UBS Global Wealth Management.
Constellation Brands, the company that sells Modelo and Corona beers in the US, fell 3%. Best Buy, which sells electronics made around the world, lost 2.6%. Brown-Forman, which sells Jack Daniel’s and other alcohol in Canada, fell 2.8%.
Instead of stocks and crypto, investors moved instead into longer-term US government bonds, which are seen as some of the safest possible investments. The resulting rally in their prices drove Treasury yields down.
The yield on the 10-year Treasury fell to 4.54% from 4.55% late on Friday after earlier dropping as low as 4.46%.
