Key Takeaways
- Markets Slide Again As Tariff Tensions Trigger Broad-Based Asset Volatility
- China Escalates Trade War, Raising Tariffs And Limiting U.S. Imports
- Inflation Data Disappoints, While Earnings Season Begins With Mixed Signals
It was another rough day for markets as tariffs continued dominating headlines. The S&P 500, after staging a monster rally on Wednesday, fell nearly 3.5% on Thursday. Tech and small-cap stocks had the worst performance with both the Nasdaq Composite and Russell 2000 falling 4.3%. Meantime, the Dow Jones Industrial Average lost 2.5%.
What we’re seeing with markets at the moment is unprecedented in my career. It’s not simply the movement in stocks and subsequent volatility, but the velocity of moves in all assets. Gold has been on a tear, settling on Thursday at $3,315.20/ounce, a new record high. The movement in yields on the 30-year bond has led to the biggest weekly increase in rates since 1982. Last week that yield hit a low of 4.33% and in premarket today, it’s up to 4.88%. The dollar also fell for the fifth consecutive day and is at its lowest level in over a year.
The driving force behind the market’s wild swings continues to be the escalation of the trade war. On Wednesday, the Trump administration announced a 90-day reprieve on retaliatory tariffs for countries looking to negotiate. However, at the same time, the administration announced they would raise tariffs on China to 125% in response to China raising tariffs on U.S. goods. Then on Thursday, the administration clarified tariffs on China would actually be 145% because of an already existing 20% tariff.
While assets rallied on the 90-day reprieve news, markets later realized the net effect of the increased China tariffs and 90-day suspension of retaliatory tariffs resulted in an even higher anticipated net cost to customers. When tariffs went into effect Wednesday morning, it was estimated consumers would see a net increase on goods of $3,800 per year. With the adjustments announced Wednesday afternoon and clarification on Thursday, that cost increased to an estimated $4,400.
Overnight, the trade war with China escalated further yet, with China announcing it would reduce imports of American movies and raise tariffs on U.S. goods to 125%. China also said it would not respond to any future tariff increases by the U.S. as those would be seen as a “joke” globally. What China is alluding to is, at a certain point, you hit a threshold where tariffs make it impossible to export goods.
While the trade wars continue, we are getting more economic data and earnings season has also kicked off. On Thursday, the most recent Consumer Price Index report was released. The report came in weaker than expected. Then this morning, the Producer Price Index was released. That number also came in weaker than forecast. It’s worth noting, the data released for both reports are based on March prices and not reflective of what is currently happening with tariffs. Therefore, we may see further deceleration in prices when April numbers are released next month.
On the earnings front, Wells Fargo and JPMorgan both released first quarter results. Wells Fargo saw a 16% increase in first quarter earnings, while JPMorgan beat revenue estimates. The one item that stood out most for me came from JPMorgan who said they significantly increased their bad loan reserves, which suggests they are concerned about the future state of the economy. In premarket, both stocks are higher by a little less than 1%.
For today, I’m hoping to see markets calm themselves a bit. We already saw a day’s worth of activity in the overnight session, and I get the sense investors are exhausted. I think everyone just wants to get to the weekend and get some rest ahead of what could be a big week next week. As evidence of this, normally the CPI and PPI are market moving events, but in both cases, markets were little changed following their respective releases. Looking forward to next week, in addition to a potential continuation of what has been taking place, we’re also going to get deeper into earnings season with more banks reporting along with names like Netflix. The economic calendar is lighter on reports, but one report that will be of interest is retail sales. We also have a number of members of the Federal Reserve speaking and I think markets will be closely monitoring what they have to say with respect to rates. As always, I would stick with your investing plan and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.