US stock markets faced heavy selling pressure on Monday as futures linked to the S&P 500, Dow Jones, and Nasdaq 100 fell sharply in early trade. Investor sentiment weakened after President Donald Trump’s sweeping tariffs on Canada, Mexico, and China raised concerns of a global trade war, weaker corporate earnings, and an economic slowdown.
At 4:11 a.m. ET, Dow Jones futures traded 588 points, 1.32 percent, below, and S&P 500 futures edged 1.55 percent down. Nasdaq 100 futures took a beating, dropping 1.86 percent, with big-tech stocks including Apple, Nvidia, and Microsoft down 2-3 percent in early trading.
The decline comes in reaction to Trump imposing 25 percent tariffs for Canadian and Mexican and 10 percent tariffs for Chinese goods over the weekend. Canada and Mexico retaliated with an immediate counterattack, issuing a threatened counterattack, with China announcing that it will contest the tariffs at the World Trade Organization (WTO).
Goldman Sachs and Morgan Stanley strategists forecasted that prolonged tariffs could impact earnings at companies, with an estimate of a 2-3 percent drop in S&P 500 earnings per share (EPS) in case of a prolonged tariffs period. RBC Capital Markets forecasted a 5-10 percent cutting in US stocks in consideration of poor performance at companies and heightened uncertainty for investors.
“We doubt many companies will be able to beat tariffs,” XTB Ltd’s head of analysis, Kathleen Brooks, added, stating that heightened costs and dislocations in supply chains will depress earnings.
Trump dismissed rumours of a policy about-turn but confirmed that later in the day, Canadian and Mexican leaders will have a sitdown with him. But in a move that heightened uncertainty, he threatened European goods with tariffs, stating “they’re definitely happening soon,” sending financial markets reeling worldwide.
The tech stocks fared badly, with chip stocks including Broadcom and Nvidia down over 3 percent. Car stocks fared badly with investors worried about heightened input costs.
- General Motors plunged 6.7 percent
- Ford Motor Company dropped 4.1 percent
- Tesla fell 5.3 percent
The tariffs are expected to increase production costs, potentially reducing profit margins for manufacturers.
As risk sentiment deteriorated, investors fled to safe-haven assets such as US Treasuries, gold, and the Japanese yen.
- The 10-year US Treasury yield eased slightly as investors sought safety in bonds.
- The US dollar surged to a near two-year high, with the Bloomberg Dollar Index rising 0.9 percent.
- Gold prices climbed 1.5 percent, reflecting increased risk aversion.
Goldman Sachs estimated that Trump’s tariffs could shave 1.2 percent off US economic growth while adding 0.7 percent to core inflation, which could force the Federal Reserve to keep interest rates higher for longer.
Global Market Impact and Oil Prices
The tariff fallout was not limited to the US.
- European markets dropped sharply, with the Stoxx Europe 600 falling 1.5 percent, dragged down by losses in Volkswagen and Stellantis.
- The Mexican peso slumped more than 2 percent, reacting to the potential impact on North American trade.
- The South African rand weakened after Trump announced plans to halt US funding to the country.
Meanwhile, oil prices surged, with West Texas Intermediate (WTI) crude jumping 2.4 percent. The rise in crude prices was driven by concerns that tariffs on North American energy imports could disrupt supply chains and increase gasoline prices for consumers.
Outlook for Wall Street and Global Markets
With fears of a prolonged trade war, investors remain cautious about the outlook for equities. The upcoming corporate earnings season will be closely watched to assess how companies are adapting to higher tariffs and rising costs. Meanwhile, the Federal Reserve’s stance on interest rates will play a key role in determining market direction in the coming months.
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