U.S. Stocks Show Resilience Amid Tariff Threats

The U.S. stock market demonstrated its resilience on Monday, September 18, as investors largely shrugged off President Donald Trump’s latest tariff threats. Despite concerns about potential inflation and economic impacts, the S&P 500 climbed 0.7%, recovering from a losing week that had been weighed down by tariff fears. The Dow Jones Industrial Average also added 167 points, or 0.4%, while the Nasdaq composite rallied 1%, led by strong performances from Big Tech stocks like Nvidia and Broadcom. The bond market remained steady, with Treasury yields seeing only modest changes following Trump’s announcement of 25% tariffs on steel and aluminum imports, as well as other potential import duties later in the week.

Tariff threats have been a recurring theme on Wall Street, and experts warn that market volatility is likely to continue. Gold prices, often a safe haven for nervous investors, hit another record high, topping $2,930 per ounce. However, Trump’s history of using tariffs as a negotiating tool, as seen with Canada and Mexico, suggests that these threats may not necessarily translate into long-term policy. This ambiguity has left investors cautiously optimistic, weighing the potential risks against the possibility of relief if tariffs are rolled back.

Sector-Specific Reactions to Tariff News

The impact of tariff threats was evident in the performance of specific sectors on Monday. U.S. steel and aluminum producers saw significant gains, with Nucor rising 5.6%, Cleveland-Cliffs jumping 17.9%, and Alcoa climbing 2.2%. These companies are poised to benefit from tariffs that could protect domestic industries and boost profits. Conversely, manufacturers that rely on steel, such as General Motors, Caterpillar, and Ford, experienced declines or flat performance, reflecting concerns about higher production costs.

The broader S&P 500 index remained relatively stable, suggesting that while tariffs are causing sector-specific shifts, they are not yet triggering a widespread market downturn. This aligns with the views of strategists like Michael Wilson at Morgan Stanley, who argue that the broader market is unlikely to be severely impacted unless tariffs are imposed on a wide range of countries, including Mexico and Canada, at higher rates. For now, the market appears to be distinguishing between industries that stand to gain from tariffs and those that could be hurt by them.

Earnings Reports and Big Tech’s Rebound

Earnings reports from major U.S. companies also played a significant role in Monday’s trading activity. McDonald’s, for instance, saw its stock climb 4.8% despite missing analyst expectations for profit and revenue in the final quarter of 2024. Investors focused on the company’s stronger-than-expected performance in international markets, particularly in the Middle East, Japan, and other regions with licensed McDonald’s locations. This underscores the growing importance of global operations for U.S. companies.

Big Tech stocks were another driving force behind the S&P 500’s gains, with Nvidia and Broadcom rising 2.9% and 4.5%, respectively. These gains came despite recent pressures on the sector, which had been fueled by concerns about a Chinese company’s development of a rival large language model in artificial intelligence (AI). While this development initially raised worries about reduced spending on top-tier chips, U.S. tech giants have reaffirmed their commitments to invest billions in AI, calming some of those fears.

Market Volatility and Fed Policy

The day’s trading also highlighted the ongoing volatility in the market, as some stocks experienced significant swings. Incyte, a biopharmaceutical company, dropped 7.9% after reporting weaker-than-expected profits for the latest quarter. Meanwhile, the bond market remained cautious, with the yield on the 10-year Treasury holding steady at 4.50% and the two-year Treasury dipping slightly to 4.27%. These movements reflect shifting expectations about the Federal Reserve’s future actions, particularly as inflation concerns tied to tariffs weigh on traders’ minds.

Fed Chair Jerome Powell is set to testify before Congress later in the week, offering an opportunity for further insights into the central bank’s thinking. The Fed has cut interest rates several times in recent months, but traders are now scaling back their expectations for additional rate reductions in 2025. This shift is driven in part by fears that tariffs could fuel inflation, which would limit the Fed’s ability to cut rates further. Upcoming reports on inflation, including a key update on consumer prices expected this week, will likely play a significant role in shaping the Fed’s policy decisions.

Global Markets and Economic Context

International markets also saw gains, with indexes rising across much of Europe and Asia. In Japan, the Nikkei 225 remained flat despite the government reporting a record current account surplus for last year. This reflects the broader global economic context, where trade tensions and policy shifts continue to influence market sentiment.

Overall, Monday’s trading highlighted the complexities of the current market environment, where tariff threats, earnings reports, and central bank policies are all vying for attention. While the S&P 500’s gains suggest resilience, the ongoing volatility and sector-specific shifts underscore the challenges of navigating this uncertain landscape. As investors look ahead, they will be closely watching for clues about the Fed’s next moves and the potential impact of tariffs on the global economy.