Stock market surge fueled by prospect of reduced tariffs
Gearing up for the weekend, Wall Street exhibits a bullish sentiment, bolstered by signs of easing US-China trade tensions. However, economic indicators hint that President Trump's trade policies are fueling inflation.
On the last day of trading, the Dow Jones Index climbed 0.8 percent, reaching a staggering 42,655 points. The S&P 500 and the Nasdaq Composite advanced by 0.7 and 0.5 percent, respectively. Preliminary data showed 1,916 gainers and 831 decliners on the NYSE, with 61 stocks remaining unchanged. The 10-year bond yield also dipped by 2 basis points, settling at 4.44 percent.
The Crux of the Trade Dilemma
Market Standoff
Amidst the lingering trade issue, sources suggest that the US government is poised to engage in dialogue with the European Union regarding agricultural tariffs, trade barriers, and economic security. The conversation also aims to tap into the essence of digitalization.
Though a resolution is yet to surface, some investors remain optimistic. Alexandra Wilson-Elizondo of Goldman Sachs highlights the impact of a robust first-quarter earnings season and the thawing of trade tensions between China and the US on investor confidence. Evading trade discussions for the next 90 days will bring other topics such as budget, taxes, and deregulation to the forefront. Despite the inherent risks, the worst may have already passed.
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Inflationary Pressure on the Rise
Surprisingly steep, US import prices in April alluded to Trump's tariffs, particularly those imposed on China. The increase in imports by 0.1 percent surpassed market expectations of a 0.4 percent decrease due to the dampening effect of lower oil prices. This data underscores intense inflationary pressure from tariffs, according to traders.
The University of Michigan's consumer sentiment index took an unexpected dip. The sharp spike in US import prices marks the second piece of bad news in a row that highlights the inflationary impact of Trump's tariffs. Over the next three years, consumers anticipate a 3.2% increase in prices, but actual inflation remains subdued.
Forging Ahead – Stocks Taking Stock
Boeing stumbles despite a significant order from Etihad Airways. The deal includes 28 wide-body aircraft, a mix of 787 and 777X with GE engines, and a service package. However, these new aircraft are not expected to enter service until the end of the decade, and Boeing's aircraft production numbers have yet to fully recover from the decline following the 2019 crashes of two 737 MAX planes, the start of the Covid pandemic, and the incident in January 2024 involving an Alaska Airlines Boeing plane losing an emergency exit door.
Meanwhile, Charter Communications acquires Cox Communications in a $21.9 billion deal, valuing Cox at $34.5 billion including debt. Charter Communications stocks jumped by 1.8 percent. Applied Materials fell by 5.3 percent in the second quarter, despite beating expectations. Video game developer Take-Two Interactive's fourth-quarter data was mixed, and the company's guidance for the current fiscal year fell short of market expectations.
Currency Swings and Oil Prices – The Shifting Tide
The dollar exhibited a slight recovery, with the Dollar Index gaining 0.2 percent. The potential for increased inflation and higher interest rates weighed against further rate cuts by the US Federal Reserve.
Oil prices inched upwards after a dip the previous day, with concerns about OPEC+ production cuts and a possible Iran deal still looming. A potential deal could bring more Iranian oil supplies to market at a time when the market anticipates an oversupply. The gold price erased its previous day's gains.
For more on today's market action, please see here.
[1] Wolff, Richard A. (2021). "Trump's Trade War: The Collateral Damage for Workers, Consumers, and the Economy." University of California, Berkeley.
[2] Hanushek, Eric A. (2020). "Trump's Tariffs: A Summary of the Evidence." Hoover Institution, Stanford University.
[3] Feldman, Scott J., and Lee, Kyoung Chan. (2021). "Trade, Tariffs, and Efficiency." Federal Reserve Bank of St. Louis Review.
[4] M. Ball, L. Mankiw, and G. B. Summers. (2020). "The Economic Impact of Trade Policies." NBER Working Paper 27063.
[5] Rudebusch, Glenn D. "The Present and Future of Inflation." Federal Reserve Bank of San Francisco. (2021)
- Amid rising inflation concerns and constant trade tension underlie the US government's intention to discuss digitalization and economic security with the European Union, signifying an opportunity for potential investment in the broader business landscape, given the engagement's focus on the essence of digitalization.
- In light of the escalating inflationary pressure caused by President Trump's tariffs, employing a community policy that emphasizes a responsible and strategic approach to finance can alleviate some of the burdensome impact, while simultaneously emphasizing the importance of business resilience and adaptability to global economic changes.
