With an eye toward the Trump administration’s outsized tariffs set to take effect at midnight, U.S. markets quickly reversed an early morning rally on Tuesday and closed down for a fourth-straight day.
The open question for investors, economists and the public remains whether — and how — the latest installment of Trump's tariff program will affect prices for consumer goods.
The situation remains fraught. The Trump administration has offered mixed signals about its willingness to negotiate the gigantic tariffs announced last week, and both Trump and China have escalated their rhetoric around what has become an all-out trade war.
China now faces a cumulative tariff rate of 104% because of new trade duties Trump imposed this year, on top of levies he had already enacted during his first term. Those took effect late Tuesday.
Asian and European markets rallied overnight, with U.S. stocks initially maintaining that momentum. But it ended up being a wild day for Wall Street, with the major indexes declining throughout the session. The S&P 500 swung about 7% — initially starting out strongly positive but finishing the day down 1.6%.
The tech-focused Nasdaq faced a similar swing, closing 2.2% lower. The Dow Jones Industrial Average fell 0.8%.
Those major indexes are now sharply lower since Trump's inauguration. The S&P 500 has lost 17% of its value, while the Nasdaq is down 22%.
Despite fresh rhetoric Tuesday from Trump and Treasury Secretary Scott Bessent about "deals," there is nothing to indicate that the dramatic growth slowdown that economic analysts are predicting with the implementation of the massive country-by-country duties — set to kick in Wednesday — will be staved off if Trump implements his vision as he currently foresees it.
“Aggressive and ubiquitous earnings growth downgrades will accompany negative corporate guidance,” analysts with BCA Research consultancy wrote in a note Monday. “Over time, as the damage the tariffs will inflict on the economy becomes a reality — a spell of economic downgrades will follow.”
On Tuesday morning, Trump posted to social media that China “wants to make a deal, badly.”
Those remarks came after Chinese officials called Trump’s latest threat to impose an additional 50% tariff “blackmail” and vowed China would “fight to the end.”
In an interview on CNBC early Tuesday, Treasury Secretary Scott Bessent said that China’s escalation was a “big mistake” and that it was “playing with a pair of twos.”
Though Bessent suggested “some good deals” could be hammered out with individual nations, even then “part of the calculus of that may be that some part of the tariffs stay on.”
Trump's vision would see America move production of much of what it currently imports back to its shores. Rather than merely charging more for importing goods into the U.S., Trump seeks to close or even outright reverse the U.S.’s large trade deficit with the rest of the world by re-shoring en masse goods production that has long been outsourced to the rest of the world.
The objective was further articulated Monday by Peter Navarro, Trump's senior adviser for trade and manufacturing. It came in the context of criticisms of him by Elon Musk, the Tesla boss who hit out at Navarro over the weekend.
“If you go to his Texas plant, a good part of the engines that he gets come from Japan and come from China,” Navarro said. “The electronics come from Taiwan... what we want — and the difference is in our thinking and Elon’s on this — is that we want the tires made in Akron. We want the transmissions made in Indianapolis. We want the engines made in Flint and Saginaw. And we want the cars manufactured here.”
Early Tuesday, Musk, who spent the first weeks of Trump’s second term playing an outsize advisory role, called Navarro a “moron” and “dumber than a sack of bricks.”
A growing chorus of economists and business leaders say that Trump's vision, while laudable, would come at the expense of massive price hikes for consumers, reduced wages for workers at the proposed plants, or lower corporate profits — all of which set off lower overall economic growth.
Trump's rollout has already caused trillions in paper losses for U.S. firms in anticipation of the reset. Late Monday, hedge fund billionaire Ken Griffin called Trump's tariffs proposal a "huge" mistake that would hurt the middle class.
“It’s going to cost you 20%, 30%, 40% more for your groceries, for your toaster, for a new vacuum cleaner, for a new car,” Griffin said at an event Monday, according to Bloomberg News. “Even if the dream of jobs coming back to America plays out, that’s a 20-year dream. It’s not 20 weeks. It’s not two years. It’s decades.”
In Senate testimony Tuesday, U.S. Trade Representative Jamieson Greer acknowledged the difficulties facing firms reliant on goods brought in from abroad.
“I think the challenges, frankly, are going to be more for companies that are largely dependent on imports from China and Asia, where they have to adjust their supply chains in a quick set of time,” Greer said.
Some analysts suggested Tuesday’s move higher on Wall Street was mostly the result of thinner trading volumes, which tend to amplify any market moves that do take place, and would thus be short-lived. Just before noon Tuesday, markets had come down significantly from earlier highs.
“Markets remain relatively thin and skittish,” said Steve Sosnick, chief strategist at Interactive Brokers financial group. “So each of these moves get amplified, that’s what we’re seeing today: a little bit of bargain hunting, which does make sense, but then we’re also seeing a little bit of a feeding frenzy that gets amplified.”
Business sentiment continues to sour, with the National Federation of Independent Business reporting early Tuesday that its small business optimism index saw its biggest one-month decline since December 2020.
“The implementation of new policy priorities has heightened the level of uncertainty among small business owners over the past few months,” the federation's chief economist, Bill Dunkelberg, said in a statement. “Small business owners have scaled back expectations on sales growth as they better understand how these rearrangements might impact them.”
In a note to clients Tuesday, Goldman Sachs analysts warned not to read too much into stock rallies like Tuesday's.
"Bear market rallies are quite common," they wrote, citing past histories of wider market-drawdowns like the dot-com bubble and the 2008 financial crisis. "We see a pattern of rebounds before the market reaches a trough," they said.
U.S. corporate earnings season kicks off this week, with Delta Airlines reporting Wednesday and large U.S. banks reporting Friday. Sosnick said the impact of tariffs will be top of mind — but that there may not be firm answers given the ongoing uncertainty and even disbelief about what Trump has proposed.
"People are confused, scared and angry," Sosnick said.
