Going Up? Wall Street's Casual Response to Trump's Tariff Stunts
Increased U.S. tariffs not a worry for Wall Street investors
Wall Street, in its incredible endurance, has seemingly developed a penchant for shrugging off President Trump's tariff announcements like a seasoned gambler shrugging off a losing hand. Trump's most recent salvo of hiking tariffs on steel and aluminum imports didn't even elicit a blink. Instead, the Dow Jones, S&P-500, and Nasdaq Composite took a long drag, exhaled, and continued their upward march.
Traders across the financial kingdom chattered about "habituation," a term that once belonged to the realms of psychology. Now it seems, it's Wall Street's newest darling.
Despite this newfound acceptance, there lingers a veil of uncertainty hanging over the trade battlefield. Trump's tariff maneuvers, paired with the U.S.'s and China's mutual accusations of sabotaging recent trade deals, sends a chill down the spine of economic optimists. The trade peace between the U.S. and China teeters precariously, threatening to disintegrate over the handling of rare earths, as rumors swirl.
Speaking on the matter, market strategist Jim Reid of Deutsche Bank uttered, "It's a wild West show over here when it comes to trade. For now, it seems likely that this tariff uncertainty will continue, even if we've probably passed the peak of US policy aggression."
The Dow Jones Index, still strutting with swagger, added 0.1 percent to 42,305 points. The S&P-500, ever the showman, closed 0.4 percent higher, and the Nasdaq Composite, the crowd favorite, went up 0.7 percent. Preliminary numbers show 1,264 gainers and 1,487 losers on the NYSE. 79 stocks remained unchanged in this high-stakes game of economics.
The economic report card of the day painted a muddled picture. According to ISM, industrial activity in the U.S. hit the brakes in May. However, the S&P Global survey of the U.S. industry showed a strengthened position compared to the preceding month.
However, the resurgence of another tariff-related measure shook Wall Street's self-assured demeanor. Contained in a tax law by President Trump, the change would grant the U.S. the authority to impose new taxes of up to 20 percent on foreigners with U.S. investments. Some call it a "revenge tax," as it's explicitly designed to target countries accused of unfair treatment of U.S. companies.
The proposed law fueled some anxious stirrings on the bond market. The yield on ten-year U.S. Treasury notes rose by 4 basis points to 4.45 percent. Investors jettisoned US bonds, despite U.S. Treasury Secretary Scott Bessent extinguishing fears of a US default. Yet, the staggering level of debt left a sour taste in the mouths of investors, with Rabobank remarking it was peculiar such concerns were even being raised.
The trade conflict reignited boosted demand for the gold market's supposed safe haven, with a weak dollar adding fuel to the fire. The Ukrainian offensive against Russia's strategic bomber fleet sent new shivers down the collective spine of investors, with the troy ounce jumping 2.8 percent to $3,381.
News from Russia sent the oil market into a frenzy. Brent and WTI prices surged by up to 3.8 percent. OPEC+'s agreement to boost production from July was an expected move, yet it's already factored into prices, according to experts.
Meanwhile, the U.S. steel stocks, sensing opportunity, sought for their chance to shine. Announced U.S. tariffs on U.S. steel and aluminum imports sent Cleveland-Cliffs shares soaring 23.7 percent, while Steel Dynamics and Nucor reveled in a 10.3 and 10.1 percent gain, respectively.
Apple (+0.5%) found itself embroiled in a legal tussle with the EU competition authority over a decision regarding compatibility issues with its iOS operating system under the digital markets act. On the other hand, Biontech shares soared 18.1 percent, having signed an agreement with Bristol Myers Squibb (+1.1%) for the development and commercialization of its antibody candidate "BNT327," a deal worth billions.
Finally, the UK takeover panel extended the deadline for US chipmaker Qualcomm's (+1.0%) takeover offer for Alphawave IP Group for the fourth time, while Campbell's, the ready-meal maker, managed to beat market expectations in the third quarter but issued a gloomy outlook. Its shares inched up 0.7 percent, despite the dour outlook.
Sources: ntv.de, toh/DJ
Habituation and Tariff Announcements: A Changing Dynamic
The Department of Psychology laid the groundwork for the concept of habituation, which, surprisingly, has found a new home in the murky waters of Wall Street. Habituation defines the process by which an organism adapts to a repeated stimulus by responding less intensely each time the stimulus is presented.
- Adaptation over Time: Initially, Wall Street's responses to tariff announcements were tempestuous, reflecting investors' attempts to parse the implications of each new policy shift. However, as the frequency of these announcements increased, the market's reactions became less dramatic, indicative of investors becoming accustomed to these economic fluctuations.
- The Minimal Response: The most recent tariff announcements have elicited minimal market responses, suggesting that Wall Street has become increasingly desensitized to the economic toll of tariffs, at least in the short term.
- A Cautious Optimism: Despite the market's seemingly stable response, the broader economic and geopolitical context shapes the market's sentiment. Any meaningful rollback of tariffs remains elusive, casting a pall over market optimism.
In conclusion, habituation has reshaped the dynamics of Wall Street's response to tariff announcements, resulting in reduced volatility over time. However, the overall impact on major indices continues to hinge on the broader economic and geopolitical context, leaving investors with a delicate dance between caution and optimism.
- The Commission, in the realm of Wall Street's analysis, has noted a significant shift in market reactions towards tariff announcements, likening it to the psychological phenomenon of habituation.
- This habituation, explained by the Department of Psychology, is now observed in financial circles, as investors respond less intensely each time a tariff announcement is made, demonstrating an adaptation to repeated stimuli.
