President Donald Trump triggered Monday’s stock market sell-off with his shifting tariff policies, which are bad news if they’re tactical and even worse if they’re long-term strategies, market observers said.
The Dow Jones Industrial Average plunged 805 points, or 1.9%, in afternoon trading, with the other major market indexes showing even steeper losses. The S&P 500 fell 2.7%, and the Nasdaq Composite plummeted 4.2%. Last week was the stock market’s worst in two years.
The president’s sweeping tariffs on Canada, Mexico, and China last week — with the promise of additional duties in the near future — rattled markets and drove pushback from business groups. Although some exemptions and delays were announced later in the week, Wall Street’s worries weren’t assuaged — especially after Trump refused to rule out a recession in an interview that aired Sunday.
“This is the first time we’ve seen economic-slowdown fears rattle the market in a bunch of years,’’ said Christopher Grisanti, Mai Capital Management’s chief market strategist. “I’ll certainly pin it on the tariffs.”
If the tariffs are purely tactical and short-term — which Grisanti increasingly doubts — then they’ll cause enough uncertainty to prompt companies to delay hiring and put off building factories, weighing on economic growth.
“Investors believe a tariff war is inevitable and this will result in economic inefficiencies,” said Ernan Haruvy, an economist and marketing professor at McGill University. “Moreover, the unpredictability of the tariff policy is making markets jittery and they price in the corresponding risk premium.”
The next possible catalyst for the market will be inflation numbers due Wednesday, said BeiChen Lin, a strategist at Russell Investments.
“If inflation were to come in somewhat softer than expected, it could potentially help investors breathe a sigh of relief and stabilize equity markets in the near-term,” Lin wrote in a note. “But if inflation were to come in hotter than anticipated, that could spook markets.”
Looking abroad may be a short-term remedy. “Investors are rotating from previous market leaders to companies and markets that have lagged,” said Michael Rosen, the CIO of Angeles Investments. Investors, he said, “should diversify portfolios out of the U.S. as a weaker dollar favors non-U.S. assets.”
If Trump continues to hold with the part of his administration that really wants to bring factories back to the U.S. from overseas, it’s a “whole other ball of wax, and not what the market is expecting,” Mai’s Grisanti said.
That would mean the two pillars of the post-World War II world order — free trade and NATO — would both be crumbling.
And that kind of change would “mean much higher costs and take years,” Grisanti said. “I don’t think he’d have public support for that kind of economic pain.” Given how complicated goods have become, the task might not even be a possible, as it’d be “like unscrambling eggs.”
“He is taking on big structural issues,” Grisanti said, “but the question is whether the cure is worse than the disease.”
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