The Dow Jones Industrial Average (NYSE: DIA) staged a massive comeback on Tuesday, recovering from steep losses earlier in the session, as market participants weighed the potential outcomes of President Donald Trump's increased tariff threats towards China.
The blue-chip index rose over 200 points on Tuesday at end the session at 46,270.46 -- earlier in the day, the Dow fell over 600 points. The S&P 500 Index (NYSE: SPY), meanwhile, closed down 0.2% to 6,644.31 after rising at much as 1.5% at session highs. The tech-heavy Nasdaq Composite (NASDAQ: QQQ) also saw losses on Tuesday, falling 0.8% to end the day at 22,521.70.
Wall Street initially opened lower on Tuesday after China imposed sanctions on five of South Korea's Hanwha Ocean's U.S. subsidiaries, effectively cutting the organizations off from doing business with China. This move added to the already volatile trade relationship between Beijing and the United States, as President Trump threatened to impose an additional 100% duty on Chinese imports last Friday before later stating in a post on his social media platform Truth Social that trade between the nations "will all be fine."
On Tuesday, Trump renewed trade anxieties again, calling China's decisions to stop buying U.S. soybeans "an Economically Hostile Act."
"I believe that China purposefully not buying our Soybeans, and causing difficulty for our Soybean Farmers, is an Economically Hostile Act," Trump wrote in a Truth Social post. "We are considering terminating business with China having to do with Cooking Oil, and other elements of Trade, as retribution. As an example, we can easily produce Cooking Oil ourselves, we don't need to purchase it from China."
Amid the increased uncertainty, strong quarterly earnings reports from big banks offered a bright spot for investors as they contend with various market headwinds. JPMorgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Citigroup (NYSE: C) and Wells Fargo (NYSE: WFC) each topped analyst expectations on Tuesday, with JPM and GS benefitting from higher trading volumes and C and WFC seeing better-than-expected profit gains.
JPMorgan CEO Jamie Dimon, who leads the largest U.S. bank by multiple metrics, said in a statement that while all of the bank's business segments are performing well, he is still preparing for a possible economic downturn.
"While there have been some signs of softening, partifucaly in job growth, the U.S. economy generally remained resilient," Dimon said. "However, there continues to be a heightened degree of uncertainty stemming from complex geopolitical conditions, tariffs and trade uncertainty, elevated asset prices and the risk of sticky inflation."
"As always, we hope for the best, but these complex forces reinforce why we prepare the firm for a wide range of scenarios," Dimon added.
Market participants also turned their attention to the latest remarks from Federal Reserve Chair Jerome Powell on Tuesday, who signaled at the National Association for Business Economics conference in Philadelphia that the central bank is nearing an inflection point where its effort to reduce its more than $6 trillion in balance sheet holdings could end.
"Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions," Powell said in prepared remarks. "We may approach that point in coming months, and we are closely monitoring a wide range of indicators to inform this decision."
Regarding the central bank's path on interest rates, Powell noted that weakness in the labor market signals that more cuts may be necessary to support the U.S. economy.
"If we move too quickly, then we may leave the inflation job unfinished and have to come back later and finish it," Powell said. "If we move too slowly, there may be unnecessary losses, painful losses, in the employment market. "So we're in the difficult situation of balancing those two things."
Looking ahead, market participants will continue to monitor trade developments between the U.S. and China on Wednesday. Key earnings reports from companies including Bank of America (NYSE: BAC), Morgan Stanley (NYSE: MS), and ASML Holding (NASDAQ: ASML) are also scheduled for release Wednesday morning.