A historic stock market rally stalled as President Donald Trump's latest tariff warnings did little to bolster sentiment as investors braced for the economic and corporate earnings effects of his trade war.
Even data showing a pickup in U.S. service provider growth failed to lift sentiment, with the S&P 500 snapping its longest winning streak in about 20 years. While Trump hinted some sort of trade deal could be reached this week, he signaled no immediate deal with China. As the president expanded his restrictions on U.S. imports to entertainment, shares of companies such as Netflix Inc. and Walt Disney Co. fell.
Recent economic data appears to have put to rest fears of a recession, but the results of Trump's tariff war are yet to be felt. To some market watchers, the tariffs will eventually slow the U.S. economy as supply chains are disrupted and consumer confidence plummets, with the increased levies likely to provide at least a temporary jolt of inflation. "The S&P 500 shook off the tariff selloff with one of its strongest bursts of short-term momentum in 20 years, but it remains to be seen whether it can generate a new bull market," said Chris Larkin at E*Trade of Morgan Stanley.
Attention will soon turn to the Federal Reserve's decision this week as bond traders scale back bets on interest-rate cuts that have been building as Trump's trade wars wreak havoc on financial markets.
As long as the labor market remains strong, the central bank can easily justify its silence. While Jerome Powell and his colleagues have generally welcomed recent cooling in inflation, higher U.S. tariffs on imports risk derailing progress on that front. The S&P 500 fell 0.7%. The Nasdaq 100 fell 0.9%. The Dow Jones Industrial Average fell 0.2%. The yield on the 10-year U.S. Treasury rose four basis points to 4.35%. The Bloomberg Dollar Spot Index fell 0.3%.
Crude oil fell as OPEC+ agreed to a big output increase. Taiwan's dollar surged the most since 1988 on speculation authorities will allow it to strengthen to help reach a trade deal with the U.S.
Source: Bloomberg
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