Trump's decision to put tariffs on hold calmed investors' nerves
Stock markets plunged Monday, before recovering as President Trump paused the start of tariffs on Canada and Mexico for at least 30 days in an eleventh hour agreement on border controls.
Global stocks fell as the trading week got underway, following confirmation that tariffs were incoming for America’s neighbours – along with China, which did not get a pause – as investors weighed the potential for an all-out trade war.
The Dow Jones Industrial Average had slumped more than 660 points or 1.49% while the S&P 500 was down 1.93% and the Nasdaq dropped 2.48%. The pause on tariffs for Canada and Mexico eased fears and by mid-morning these losses had recovered to 1% or less as investors considered that Trump was essentially playing chicken with trade partners.
“While we believe that tariffs are primarily a negotiating tool for President Trump, it’s very difficult to say whether these tariffs will be short-lived or if there is a scenario where a deal is struck that reduces the tariffs,” said Yung-Yu Ma at BMO Wealth Management. “Be patient and opportunistic; there may be a time to be aggressive, but it is not upon us yet.”
The Nasdaq closed down 1.2% to finish at 19,391.26, the S&P 500 was down 0.76% at 5,994.47, and the Dow Jones was down 0.28% at 44,421.91.
Canada’s S&P/TSX Composite Index ended the session down 1.14% at 25,241.76 while the S&P/TSX60 was down 1.20% at 1,522.29.
However, the uncertainty around trade relations has got some Canadian strategists considering whether benchmark targets need updating as the impact of tariffs may not have been adequately baked in.
“Even if these tariffs are only in place for let’s say a month, that’s still a month’s worth of potential damage to earnings for the full year,” Philip Petursson, chief investment strategist at IG Wealth Management told Bloomberg. “No one knows what the trigger to a correction is ever going to be, but this certainly could be it.”
With the expectation of volatility ahead, the markets are expecting the Bank of Canada to act to shore up the economy at its March meeting with a rate cut of 25 basis points fully priced in. Economists have expressed concern that Canada could enter recession if tariffs are prolonged.
