US Stock Futures Tumble Ahead of New Trump Tariffs: Markets Wrap

The U.S. stock market is bracing for impact as President Trump's new tariffs loom on the horizon. Futures tied to the Dow Jones Industrial Average, S&P 500, and Nasdaq 100 have all taken a hit, with the Dow falling by 258 points, or 0.6%, and the S&P 500 and Nasdaq 100 futures dipping 0.7% and 0.8%, respectively. The market is on edge as Trump's "Liberation Day" approaches, with a slew of tariffs set to be enacted on Wednesday, including a 25% levy on all cars not made in the United States.

The uncertainty surrounding these tariffs has been a significant overhang on equities, dragging stocks lower again on Friday to end the last full trading week of March. Trump's aggressive stance on tariffs has left investors on the edge of their seats, with The Wall Street Journal reporting that the president has been pushing his advisors to get more aggressive with his tariff policies. In a Saturday interview with NBC News, Trump said he "couldn't care less" if foreign automakers raise their prices due to these new tariffs.

The impact of these tariffs on the U.S. economy and the stock market could be profound. According to Goldman Sachs Research, every five-percentage-point increase in the U.S. tariff rate is estimated to reduce S&P 500 earnings per share by roughly 1-2%. This means that if the proposed tariffs, such as a 25% tariff on imported goods from Mexico and Canada and an incremental 10% tariff on imports from China, are implemented, it could reduce Goldman Sachs Research’s S&P 500 EPS forecasts by roughly 2-3%.

For companies in the technology sector, which derive a significant portion of their revenues from global operations, the impact could be particularly severe. As noted by Goldman Sachs Research, a 10% increase in the value of the trade-weighted dollar would reduce S&P 500 EPS by roughly 2%. This is because a stronger dollar could further weigh on the earnings of S&P 500 companies, which derive 28% of revenues outside the U.S. For example, companies like Tesla, which have seen their stock prices fluctuate in response to tariff announcements, could face increased costs for imported components, potentially squeezing profit margins.



In the automotive sector, the impact could be even more direct. The proposed 25% tariff on all cars shipped to the United States could add thousands of dollars to the cost of many vehicles. This would likely force automakers to either absorb the higher input costs, squeezing profit margins, or pass along the higher costs to end customers, potentially reducing sales volumes. For instance, General Motors and Ford, which have extensive supply chains spread throughout North America, could face significant challenges in maintaining profitability under these conditions.

Moreover, the uncertainty surrounding tariffs has already been an overhang on equities, dragging stocks lower. As Emmanuel Cau, equity strategist at Barclays, wrote, "Tariff risk has been well telegraphed and is largely priced in corners of the market. So liberation day may not be a complete shocker. However, no one wins from trade war, and clouds are gathering over the global growth outlook." This uncertainty could lead to further volatility in the stock market, affecting the earnings and stock prices of companies across various sectors.

The potential long-term effects on the U.S. economy if the tariffs lead to retaliatory measures from major trading partners could be significant. According to Goldman Sachs Research, "every five-percentage-point increase in the US tariff rate is estimated to reduce S&P 500 earnings per share by roughly 1-2%." This suggests that sustained tariffs could lead to a reduction in corporate earnings, which in turn could negatively impact the stock market and overall economic growth.

Retaliatory measures from trading partners could further exacerbate these effects. For instance, during Trump’s last presidency, the S&P 500 fell by a cumulative total of 5% on days when the US announced tariffs in 2018 and 2019, and it fell by slightly more, a total of 7%, on days when other countries announced retaliatory tariffs. This historical data indicates that retaliatory tariffs could lead to increased market volatility and a potential downturn in the stock market.

Investor sentiment is likely to be influenced by these developments. As noted by Oxford Economics, "The recent U.S. stock market correction appears to have been partially triggered by investors realising that Trump may follow through with his tariff threats and that this will hurt the U.S. economy." This suggests that investors are already concerned about the potential impact of tariffs on the economy, and retaliatory measures could further dampen investor confidence.

Moreover, the uncertainty surrounding tariffs and potential retaliatory measures could lead to a prolonged period of market volatility. As Emmanuel Cau, equity strategist at Barclays, wrote, "Tariff risk has been well telegraphed and is largely priced in corners of the market. So liberation day may not be a complete shocker. However, no one wins from trade war, and clouds are gathering over the global growth outlook." This indicates that while some market participants may have already factored in the risk of tariffs, the actual implementation and potential retaliatory measures could still lead to significant market volatility.

In summary, the implementation of new tariffs by the Trump administration could have a significant negative impact on the earnings of S&P 500 companies, particularly those in sectors heavily reliant on global supply chains. The increased costs and uncertainty could lead to reduced profitability and market volatility, affecting the overall performance of the stock market. Investors should brace for a bumpy ride as the market navigates these uncharted waters.