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On Monday, Wall Street experienced a downturn as global investors expressed increased skepticism towards U.S. investments. This declining sentiment is often attributed to President Donald Trump’s trade policies and his continued criticisms directed at the Federal Reserve.
The S&P 500 index fell by 2.4 percent, marking a significant drop that pushed it 16 percent below its peak just two months prior.
In a related decline, the Dow Jones Industrial Average shed 971 points, or 2.5 percent. This drop was exacerbated by losses in technology giants like Tesla and Nvidia, which contributed to a 2.6 percent decrease in the Nasdaq composite.
The situation in Canada mirrored this trend, with the S&P/TSX composite index decreasing by 0.76 percent.
Adding to the market concerns, both U.S. government bonds and the U.S. dollar saw declines—an unexpected occurrence as these assets typically gain in value during periods of market uncertainty. Analysts suggest that the current unease is largely influenced by Washington’s policies, which may be undermining the traditional reputation of U.S. Treasuries and the dollar as safe investment havens.
Trump’s aggressive stance on international trade continued, with many economists warning that the proposed tariffs could potentially trigger a recession if not reconsidered. Following unsuccessful negotiations with Japan last week aimed at lowering tariffs, these discussions have been characterized as a crucial “test case” by Thierry Wizman, a strategist at Macquarie.
In a bold statement on his Truth Social Network, Trump insisted that negotiators with significant resources are the ones who dictate the rules, while decrying critics of tariffs as ineffective both in business and politics.
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Concerns escalated globally following three tumultuous days in the market primarily fueled by tariff-related turmoil. One billionaire ally of Trump even cautioned that failing to withdraw tariffs might result in a “self-induced, economic nuclear winter.”
Focus has also shifted towards China, which has ramped up its rhetoric against U.S. trade policies. On Monday, the Chinese government cautioned that countries negotiating trade agreements with the U.S. to the detriment of China would face strong countermeasures. The statement from China’s Commerce Ministry suggested a firm stance against any deals disregarding their interests.
Compounding market anxiety is the tension between Trump and Federal Reserve Chair Jerome Powell. Trump has publicly criticized Powell for not implementing interest rate cuts sooner to foster economic growth. The Fed, cautious in its approach, has refrained from rapid rate reductions, aiming to avoid reigniting inflation that has recently decreased from over nine percent to nearly two percent.
In a social media post, Trump again targeted Powell, suggesting an impending economic downturn unless the Fed chairman acts swiftly to lower interest rates.
Speculation about Trump possibly attempting to dismiss Powell raises fears among investors. While lower interest rates are generally favorable for stock prices, a potential loss of Fed independence could jeopardize effective inflation management, further diminishing the U.S.’s status as a secure investment environment.
The growing uncertainty at the core of financial markets has led some investors to reassess their investment strategies. According to a report from strategists at BlackRock Investment Institute, traditional methods of portfolio management are becoming less reliable. They emphasized the need for ongoing evaluation of economic conditions and dynamic asset allocation in response to a shifting global landscape.
Big tech leads the decline
In the context of Wall Street’s decline, major technology firms played a prominent role ahead of their anticipated earnings reports later in the week.
Tesla’s shares fell 5.7 percent. The electric vehicle manufacturer’s stock has plummeted significantly, more than halving from its record in December amid criticisms regarding its elevated valuation and its growing association with Elon Musk, who is influencing government spending cuts.
Nvidia also faced a downturn, dropping 4.5 percent after revealing that restrictions on chip exports to China could negatively impact its first-quarter financial results by $5.5 billion. This contributed to a general decline on Wall Street, where 92 percent of S&P 500 stocks fell.
Amid the losses, Discover Financial Services and Capital One Financial saw gains after the U.S. government approved their merger proposal, with Discover rising by 3.6 percent and Capital One by 1.5 percent.
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Gold prices climbed as it continued to shine as a safe-haven investment during turbulent times.
In the bond market, shorter-term U.S. Treasury yields declined as investors anticipated that the Fed would reduce its key interest rates later this year to bolster the economy. Conversely, longer-term yields rose due to increasing skepticism regarding the United States’ position in the global economic landscape. The yield on 10-year Treasuries increased to 4.40 percent, up from 4.34 percent just days earlier and significantly higher than around four percent earlier this month—an important shift in the bond market.
Simultaneously, the value of the U.S. dollar weakened against several other major currencies, including the euro, Japanese yen, and Swiss franc. The Canadian dollar also appreciated, trading at 72.36 cents U.S., a rise from 72.17 cents U.S. observed just a few days prior.
Source
www.cbc.ca