By Teresa Rivas
No matter where President Donald Trump's tariffs end up, some of the damage has already been done: Consumer and business sentiment is souring by the day, while U.S. trading partners' patience is wearing thin.
On Wednesday, Trump ramped up his trade war by announcing 25% tariffs on all cars made outside of the U.S. That broad scope of levies is worse than the worst-case scenario Wall Street had imagined.
The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all fell on Thursday in response, with auto stocks like General Motors and Ford Motor underperforming the broader market.
So it makes sense that shoppers and businesses feel like they are on shaky ground, and that the stock market remains volatile. The White House's near daily changes to tariff policy show that it is still anyone's guess where the levies will land.
The potential impact of tariffs on the economy and consumers is getting particularly worrisome.
The proposed tariffs could "disrupt supply chains, deter investments, and significantly raise consumer prices," writes UBS Global Wealth Management Chief Investment Officer Americas Solita Marcelli. "They may also ignite trade disputes with Europe, Japan, and South Korea."
April 2 -- or "Liberation Day," as Trump has dubbed it -- is the date he has promised to deliver expansive tariffs against all U.S. trading partners. Although that deadline is fast approaching, negativity could persist after that, because it will take time for the impact on supply chains and inflation to be felt.
Little wonder then that consumer and investment sentiment are hovering at the same levels as they were in the fall of 2022, in the grip of the bear market, notes Sevens Report president Tom Essaye.
Recent data points like the spike in February durable goods orders "reiterate that a sense of uncertainty surrounding tariff policies, domestically and abroad, is trickling through to have a more meaningful impact on investor sentiment and consumer confidence than initially thought," he writes.
Data from multiple sources that track consumer sentiment have been tumbling for several months straight, and the recent stock market losses means that even wealthy investors are feeling less likely to splurge.
Nonetheless, those fears could potentially reverse if trade policies are finally clarified and aren't as painful as the latest auto levies.
Société Générale strategist Kit Juckes notes that plotting consumer confidence measures from the University of Chicago and the Conference Board's along with the misery index (of unemployment plus inflation) shows that "confidence has fallen, but misery remains at a very low level."
The question then becomes, as he writes, "are the confidence/sentiment indices leading indicators or red herrings?" But investors will be unlikely to be able to answer that as long as uncertainty reigns.
TS Lombard Managing Director Dario Perkins believes that the U.S. economy is strong enough to withstand the double whammy of tariffs and deep federal cuts from the Department of Government Efficiency, or DOGE, but warns that both are "clear threats" to the economy in the coming months.
"Tariffs are already hurting business spending and could eventually squeeze real incomes, too," he writes, while DOGE remains a wild card. DOGE's "Elon Musk is making bold assertions about his cost savings but, so far, there is nothing to back up those claims."
Combined, however, these factors make it harder for the Federal Reserve to be a steadying hand, "which means there is more chance of the central bank falling behind the curve."
Overall, much of Wall Street is offering similar conclusions: The U.S. is tipping into more worrisome economic territory, but a recession isn't baked in yet. There is still time to pull back on harmful policies, but no guarantee that the powers that be will do so.
That leaves both shoppers and investors in a holding pattern.
Consumers can't spend confidently and stocks can't make sustained gains until there is clarity about trade and other parts of the Republican agenda. The longer that remains an open question, the better a wait-and-see strategy seems.
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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March 27, 2025 14:00 ET (18:00 GMT)
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