Why the stock market hates tariffs and trading wars

The stock market throws hysterics that fueled by fear of President Donald Trump Tariff policy and the ghost escalation The global trade war.

Americans may wonder why trading policy has made investors so tricky.

At a high level, investors are nervous that a long trade war causes considerable risks for the US corporate income and economics, according to investment analysts.

However, this is not a conclusion in advance. For example, the Trump administration may take trading transactions and dull the overall influence.

“But if this does not happen, the market can still be far from the bottom,” said Capital Economics in the note on Monday, the head of the Asian-Pacific market.

The S&P 500 Strait is almost 11% in two trades ended on Friday.

It was the worst two-day plot for US shares since March 12, 2020-in the first days of the Covid-19th Pandema Pandemia since 1950 In the hall Kalles Cox, Main Market Strategist in Ritholtz Wealth Management.

The reserves briefly entered the “bear” territory – that is, they fell 20% of their recent peak – during the bidding on Monday before breaking some of these losses.

The sale appeared after Trump announced a wide plan on Wednesday to put a 10% basic tariff for US trading partners. It has established much higher rates for countries, including China and traditional allies such as members of the European Union.

Their volume caught many investors in security.

The announcement “was more significant than the majority was expected, so we had a material sale” on the stock market, Chris Harvey, head of Wells Fargo Securities strategy, wrote in email.

The stock market is a promising barometer of investors’ mood-and usually falls when investors feel a collective danger.

Fear is that tariffs will increase for state -owned companies and the US wide economy. Wall -ts is there raised the chances for the US recession.

Tariffs are a tax paid by US companies that import goods from the border, and therefore they increase the cost of US business. Companies can eat some of these costs to avoid raising consumer prices by blurring profits.

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But economists expect businesses to be at least some extra consumer costs. The average household will lose $ 3,800 per year from the tariff policy announced so far, Yale budget laboratory reports.

Consumers can return to expenses, and lower sales are likely to make a company profit. Companies can choose from the outside of the workers, further pressure on consumer costs, which account for about 70% of the US economy.

Economists said economists stated that trade retaliation.

China Put 34% tariff About US Products after Trump’s announcement of “mutual” tariffs last week and cry It is “fighting to the end”. Canada Put 25% tariffs on different US goods, while the EU block is ready Its own 25% retaliation.

(S&P 500 rose by 2% on Tuesday morning Upward hopes For trading deals with China and South Korea.)

Tariffs with retaliation make the United States goods sold abroad more expensively, harming the export enterprise, which will lead to dismissal and reduced consumer expenses.

“We expect many – if not all – countries outside the United States will bring their own tariffs,” the Wells Fargo Investment Institute writes on Friday.

Wells Fargo is waiting for a “much smaller” growth for the US economy in 2025 from the “unexpectedly aggressive tariff increase”. This year it reduced its goal for gross domestic product to 1% of 2.5%.

So far, the economy does not yet show signs of dramatic relaxation, said Joe Seadle, a senior economist at a private jp Morgan. If the tariff policy turns out to be long rather than temporary, then the shock can cause a “easy” recession in the US, he said.

Economists also expect tariffs for raising inflation in the US this year at a time when it has not yet fallen to the ground from the high pandemic era.

“While tariffs are highly likely to create at least temporary inflation, it is possible that the consequences may be more persistent,” the Federal Reserve Chairman Jerome Powell – Note Friday.

The Fed may not reduce interest rates as fast as a result.

The dynamics are likely to continue borrowing costs, reducing growth prospects for those who are unable to invest and expand their activities.

Seadle said the current “tariff battle” “is very different from the tariffs at the first term of Trump.

One way: scale.

Trump’s first administration supplied tariffs for approximately $ 380 billion in 2018 and 2019 In the hall into the tax fund. Now there are tariffs for more than 2.5 trillion US importers – or about seven times.

Another difference is the public position of the White House to tariffs and communication, analysts said.

During the first term, Trump had a level of volatility of the stock market, the administration did not count the tolerant, said Seydle. Now, it seems, less concern about the stock is probably the most important factor in the sale, he said.

“Capital markets (especially shares) send the administration signal that everything is not so good and the likelihood of recession, loss of work, as well as a negative effect of wealth,” Wales Farga wrote.

“The administration somewhat abandoned these signals, creating a negative feedback cycle,” Harvey wrote.

The uncertainty around the frame, goals, potential duration and economic tolerance for the White House regarding tariffs makes it difficult to assess market risk, he added.

While the tariff policy was a catalyst for a recent sale, this is not necessarily the only factor that promoted the slide, analysts said.

For the first time, the rally estimates were already raised in 2025, said Seydle.

He said the market traded 22 times ahead – this is an indicator of the stock estimates – which is much higher than 16.5 on average in 1990. 2024 and 12.8 on average for 1950 to 2024, he said.

“If you have these increased estimates, the market will be more sensitive to bad news,” Seadle said.