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US stocks mostly shrugged off President-elect Donald Trump’s threat to impose fresh tariffs on China, Canada, and Mexico on Tuesday, showing resilience despite the potential trade tensions.
Market Performance
The S&P 500 edged up roughly 0.4%, eyeing a record close, while the tech-heavy Nasdaq Composite jumped about 0.5%. The Dow Jones Industrial Average lagged, dipping from its latest record as drugmaker Amgen tumbled as much as 12% on weight-loss data that failed to impress Wall Street.
Impact of Tariff Threats
Markets were initially caught off guard by Trump’s pledge to slap big tariffs on the US’s biggest trading partners on his first day in office. His comments fired up trade war fears and dented hopes that Treasury Secretary nominee Scott Bessent would rein in any extreme moves by the new administration. European carmaker stocks fell on the heels of Trump’s “America First” push, with Nissan and Honda, which have auto plants in Mexico, coming under pressure. In currencies, the Mexican peso and the Canadian dollar dropped sharply as the US dollar rallied.
Federal Reserve Insights
Outside of possible tariffs, investors also digested the release of the minutes from the Federal Open Market Committee meeting ended Nov. 7, which showed officials prefer a gradual pace of interest rate cuts. The minutes indicated that if data came in as expected, with inflation continuing to move down sustainably to 2% and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time. This sets the stage for the October reading of the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge, on Wednesday.
Dow Jones Industrial Average Struggles
The Dow Jones stumbled on Tuesday, shedding over 250 points at its lowest point. Despite broad market resilience, slightly below-expectations results for an experimental diet pill from Amgen dragged the weighted DJIA into the low end for the day. The major equity index has since recovered to flat for the day, with losses concentrated in key overweighted stocks.
President-elect Donald Trump reiterated his threats to enact sweeping tariffs on all imported goods into the US. Set to return to the White House in January, Trump issued a warning on social media that he intends to impose a 25% tariff on all goods coming from Canada and Mexico, with an additional 10% levy aimed at Chinese goods specifically. Investors broadly shrugged off the threat, believing that Trump will ultimately back down from his plan. However, his initial tariff proposals delivered on the campaign trail included import fees upwards of 65% on all Chinese goods that cross the US border.
Future Economic Indicators
According to the Federal Reserve’s latest Meeting Minutes, members of the Federal Open Market Committee (FOMC) remain cautious about the pace of rate cuts going forward. The Fed’s key group of policymakers seemed to agree that downside risks in the employment landscape and inflation outlook have decreased, but the pace of rate cuts is unlikely to accelerate unless weak points open up in the jobs market and price growth starts to slump. Rate traders have slightly solidified bets of a 25 bps rate trim when the Fed makes its final rate call of 2024 on December 18, with rate markets pricing in 60% odds of a quarter-point rate cut and the remaining 40% expecting a rate hold.
Wednesday will follow up with another update to US Personal Consumption Expenditure Price Index (PCEPI) inflation, a key reading of price increases underpinning the US economy. Additionally, a quarterly update of US Gross Domestic Product (GDP) growth is expected, with annualized core PCEPI inflation forecast to increase to 2.8% from the previous 2.7%, and QoQ US GDP growth in the third quarter expected to hold steady at 2.8%.
Despite equities broadly maintaining an even stance on Tuesday, the Dow Jones suffered an outweighed decline after Amgen reported results from their experimental weight loss drug that undershot investor expectations. The immediate floor for any downside pullbacks is priced in at the last swing low, with technical support from the 50-day Exponential Moving Average rising through 42,800. The broader market sentiment remains cautiously optimistic as investors anticipate key economic indicators and monitor Trump’s policy moves.
