By Gunjan Banerji
The Trump administration's proposed tariffs jolted global markets Monday, driving huge swings in stocks around the world and sending the dollar higher.
President Trump's weekend threat to place tariffs on goods imported from Mexico, Canada and China triggered a sharp overnight drop in global stocks and futures that continued in early trading Monday. But by midday, many of the trades had reversed after the U.S. and Mexico struck a last-minute deal to delay new levies.
Investors were closely monitoring the developments, hopeful for a resolution.
"People are pretty optimistic that either the tariffs don't happen or they're much more tamped down," said Danny Kirsch, head of options at Piper Sandler. Investors are wearing "rose-tinted glasses right now."
The Dow Jones Industrial Average fell more than 500 points before paring much of those declines. It was recently down around 100 points, or 0.2%. The S&P 500 slipped 0.8%, while the tech-heavy Nasdaq Composite shed 1.2%.
Investors sold off shares of automaker General Motors, logistics giant FedEx, rail operator Union Pacific and warehousing firm GXO Logistics, among others. Canadian Pacific Kansas City, which runs railroads stretching from western Canada through the U.S. Midwest and into Mexico, fell as much as 9.4% before clawing back some of those losses. GM shares were recently down 2.6%, after earlier falling more than 9%.
The moves are an early indication of how Wall Street is weighing the potential fallout from a trade war. New trade barriers could pressure the companies that ship both finished goods as well as commodities such as lumber across the Canadian and Mexican borders.
The value of the Mexican peso jumped after Trump agreed to delay U.S. tariffs on Mexico by a month. The peso climbed as much as 1% relative to the U.S. dollar, having been sharply lower earlier in the day. The Canadian dollar also rebounded from session lows.
The WSJ dollar index, which measures the U.S. currency against a basket of 16 others, was recently up 0.6%.
If tariffs are ultimately implemented, some economists say they would tip Mexico and Canada into a recession, while weighing on economic growth domestically. The levies, which also cover China, could weigh on demand for everything from beer and avocados to high-tech medical products.
They could also crimp profits at the biggest U.S. companies. Goldman Sachs analysts estimate that every 5-percentage-point increase in the U.S. tariff rate would cut S&P 500 per-share earnings about 1% to 2%.
A flight to safer assets and worries about economic growth spurred a rally in longer-dated government debt in early trading Monday, dragging yields lower. The yield on the 10-year Treasury note fell to 4.517%, from 4.566% Friday.
U.S. crude futures jumped above $74 a barrel, before retreating to $72.49, nearly flat on the day. Bitcoin prices, which fell with other speculative assets, recovered to hover just below $100,000.
Trump's moves over the weekend gave some traders déjà vu of his first administration. Back then, they frequently found themselves glued to Twitter to monitor his salvos on trade. The threat of a global trade war sent currencies and stocks from China to the U.S. swinging wildly.
Their unease returned Sunday night when U.S. stock futures began trading. Investors who took a peek at their phones saw that futures tied to the major indexes were down more than 2% and began bracing for a tough Monday.
Much of the euphoria that swept markets after Trump's inauguration has sputtered. First, the emergence of DeepSeek, an artificial-intelligence competitor from China, upended the popular tech trade. Now, traders are worried about the impact the tariffs will have on corporate earnings.
The threats highlight "the dark side of the Trump administration's policy agenda," Stuart Kaiser, head of U.S. equity trading strategy at Citi, wrote Sunday in a note to clients.
Kaiser said traders were positioning for bigger swings ahead in currencies including the Canadian dollar. One measure of expected swings in the currency is hovering around its highest level since March 2020 and close to the highest levels since 2009, according to Citi data.
--David Uberti and Owen Tucker-Smith contributed to this article.
Write to Gunjan Banerji at gunjan.banerji@wsj.com
(END) Dow Jones Newswires
February 03, 2025 14:04 ET (19:04 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
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