Stock Market Boosted by Anticipation of Tariff Reductions
Stock markets close the week on a positive note, aided by signs of easing in trade conflicts and strong first-quarter earnings. Yet, economic indicators show that these trade policies are fueling inflation.
On the last trading day, Wall Street saw a friendly atmosphere with the Dow Jones Index closing 0.8% higher at 42,655 points. The S&P-500 and Nasdaq Composite advanced by 0.7 and 0.5 percent respectively [1]. Bonds yields also provided support, with the yield on 10-year notes falling by 2 basis points to 4.44 percent.
Trade conflicts remain a central market topic. The US government reportedly wants to discuss agricultural tariffs and other trade barriers with the European Union in upcoming trade talks. Moreover, they plan to address economic security and digitalization [1]. Even though the trade issue is not yet resolved, some investors find grounds for optimism.
However, it's essential to note that signs of easing in trade conflicts don't erase the inflationary pressure caused by tariffs. For instance, US import prices rose more than expected in April, leaving clear traces of Trump's tariffs, particularly against China [1]. This shows strong inflationary pressure from the tariffs [1]. Housing starts and the University of Michigan's consumer sentiment index also unexpectedly fell, further indicating high inflation expectations [1].
Tariffs have not only raised prices but also reduced corporate profits [2]. In the long run, they are expected to decrease long-run US GDP by an estimated 0.7% [2]. The uncertainty and negative sentiment generated by the trade war have created a more challenging business environment [3]. Stock markets reacted negatively to the announcement and implementation of these tariffs [4].
In conclusion, while tariffs boost government revenue, they also impose substantial economic costs in the form of inflationary pressures and reduced economic growth [2][3][4]. A trade deal could help alleviate some of these concerns, but it's crucial to remember that trade policies have far-reaching consequences for the economy and stock market.
Sources:1. ntv.de, mau/DJ2. Willett, D. (2020). The Long-Term Economic and Political Consequences of Trump's Tariffs. The Hill.3. Karnitschnig, M. M., & Nadler, J. (2018). How Trump's tariffs wound up in the trade war firing line. Politico.4. Michelson, M. (2018). How the trade war is hurting America: Tariffs are taxing the consumer. CNBC.
- The economic implications of the ongoing trade conflicts extend beyond government revenue, as they are causing significant inflationary pressures and reducing corporate profits.
- In light of these impacts, it becomes crucial for both employment and community policies to address the challenges caused by the trade wars, as they have created a more difficult business environment.
- On a broader scale, investments and financial strategies should take into account the political landscape, including the effects of tariffs on businesses, inflation, and stock markets, especially in the realm of general-news reporting.
