Stocks were little changed on Tuesday as market participants digested the latest tariff threats from President Donald trump on key trading partners ahead of the new "reciprocal" duty deadline at the start of August.
The Dow Jones Industrial Average
Wall Street staged a steep sell-off on Monday, with the Dow dropping over 400 points, after Trump announced the "Liberation Day" tariff deadline initially set for this week will now be Aug. 1, signaling that the White House is giving countries more time to negotiate after trade representatives have said over the past few weeks that deals are imminent.
Separately, Trump also announced new tariffs for Bangladesh, Bosnia and Herzegovina, Cambodia, Indonesia, Japan, Laos, Malaysia, Myanmar, Serbia, South Africa, South Korea, Thailand and Tunisia that were more severe than investors were expecting on Monday. The new import duties were in most cases higher than the initial "Liberation Day" levels announced back in April -- Japan, for example, will face a 25% tariff on Aug. 1 compares to its 24% rate set in April.
"Investors seem to be dismissing the upside risk to inflation. But someone ultimately has to pay the tariffs -- likely showing up in CPI, profit margins, or (realistically) a combination of both," wrote Stephanie Roth, chief economist at Wolfe Research, in a Tuesday note. "While we still expect the economy to hold up, this raises near-term risks to the equity rally so far and reinforces our base case that the [Federal Reserve] stays on hold this year given the looming inflationary impact."
However, Bank of America Economist Antonio Gabriel wrote in a note on Tuesday that Trump's latest slew of tariffs on several nations appear to be more of a work-in-progress than a done deal.
"We don't think the tariffs announced yesterday are a done deal. Rather, the extension of the deadline from July 9 to August 1 suggests there is still room for negotiation," Gabriel wrote. "But if the tariffs are implemented, we estimate they should add about 0.1pp to inflation and subtract a similar amount from growth."
Still, National Retail Federation Chief Economist Jack Kleinhenz wrote in a Tuesday report that Trump's changing trade policies are making economic outlooks difficult predict as "anxiety and confusion have taken center stage in the economy and financial markets."
"It was difficult to judge how policy changes would impact the economy in early 2025 and it remains so now," Kleinhenz said in a statement. "There are many crosscurrents surrounding tariffs, immigration and deregulation, and everyone is sorting through what the tariff rates are going to be, how they will impact inflation for retail products and, importantly, how long they will be in place."
Elsewhere, shares major U.S. banks fell on Monday after HSBC downgraded JPMorgan Chase
The firm cut JPMorgan and Goldman to a rating of Reduce from Hold and lowered Bank of America to Hold from Buy.
- For JPMorgan and Goldman, HSBC analysts see "unattractive risk-to-reward profiles" for the banks, but do not currently hold a negative view on their operating fundamentals.
- For Goldman, HSBC sees "the absence of a material increase in IB activity over a sustained period and/or a cool down in market performance could lead to disappointment and a correction."
- For Bank of America, the analysts see "limited upside to our new target price after the 32% rally in the past 3 months."
