Stocks Sink on Tariff Announcement

The S&P 500 Index ($SPX) (SPY) today is down -3.58%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -3.24%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -3.90%.  June E-mini S&P futures (ESM25) are down -3.66%, and June E-mini Nasdaq futures (NQM25) are down -3.94%. 

Stock indexes are sinking today, with the S&P 500 and Nasdaq 100 falling to 6-1/2 month lows and the Dow Jones industrials sliding to a 3-week low.  Stocks are plunging today because of concerns that President Trump's trade policies will push the economy into recession.  Late Wednesday, President Trump announced reciprocal tariffs that were worse than feared, hammering stocks and the dollar and prompting a risk-off mood in asset markets.  The plunge in stocks has fueled a flight to safety into government bonds, with European government bond yields falling to 4-week lows and the 10-year T-note yield dropping to a 5-1/2 month low. 

President Trump said Wednesday the US will impose at least a 10% tariff on all countries, with higher reciprocal rates on some 60 nations.  The new tariffs will be implemented on all countries from April 5, with the higher rates implemented from April 9, and Treasury Secretary Bessent said there is no room for negotiations.  Specific industries, including steel and automobiles, are exempt from the new rates, and Canada and Mexico are also exempt from the new tariffs and will be subject to the previously announced 25% tariffs. However, China will be charged a 34% reciprocal tariff rate.  The EU will be charged a 20% reciprocal tariff, bringing total tariffs on the EU up to 39%.  Meanwhile, Japan will be charged a 24% reciprocal tariff, bringing total tariffs on Japan up to 46%.

Weekly US labor market news was mixed.  Weekly initial unemployment claims unexpectedly fell -6,000 to a 7-week low of 219,000, showing a stronger labor market than expectations of an increase to 225,000.  However, continuing claims rose +56,000 to a 3-1/3 year high of 1.903 million, above expectations of 1.870 million, showing it has become more difficult for out-of-work people to reenter the workforce.

The US Feb trade deficit eased to -$122.7 billion from -$130.7 billion in Jan, narrower than expectations of -$123.5 billion.

Stocks have been under pressure over the past month due to fears that US tariffs will weaken economic growth and corporate earnings.  On March 4, President Trump imposed 25% tariffs on Canadian and Mexican goods and doubled the tariff on Chinese goods to 20% from 10%.  Last Wednesday, President Trump signed a proclamation to implement a 25% tariff on US auto imports, effective today.  The tariffs will initially target vehicles fully assembled outside the US and, by May 3, will expand to include automobile parts made outside the US.  Mr. Trump said the tariffs were "permanent," and he was not interested in negotiating any exceptions.

Market attention this week will focus on reaction to President Trump's tariff plans.  Thursday's March ISM services index (expected to fall -0.5 to 53.0), and on Friday, March nonfarm payrolls are expected to increase by +138,000, and the March unemployment rate is expected unchanged at 4.1%.  Also, March average hourly earnings are expected +0.3% m/m and +4.0% y/y, unchanged from February.  Finally, on Friday, Fed Chair Powell is scheduled to speak to the Society for Advancing Business Editing and Writing Conference on the economic outlook.

The markets are discounting the chances at 29% for a -25 bp rate cut after the May 6-7 FOMC meeting.

Overseas stock markets today are lower.  The Euro Stoxx 50 dropped to a 2-month low and is down -3.14%.  China's Shanghai Composite Index closed down -0.24%.  Japan's Nikkei Stock 225 sank to a 7-3/4 month low and closed down sharply by -2.77%.

Interest Rates

June 10-year T-notes (ZNM25) today are up +1-6/32 points.  The 10-year T-note yield is down -10.0 bp to 4.030%.  June T-notes today soared to a 5-3/4 month high, and the 10-year T-note yield tumbled to a 5-1/2 month low of 4.014%.  T-notes are rallying today on concerns President Trump's reciprocal tariffs will drive the economy into recession, prompting the Fed to continue cutting interest rates.  Also, today's selloff in global equity markets has fueled safe-haven demand for government debt.  In addition, today's -6% plunge in crude oil prices to a 2-week low has lowered inflation expectations and is supportive for T-notes

European bond yields today are falling.  The 10-year German bund yield dropped to a 4-week low of 2.625% and is down -8.5 bp to 2.636%.  The 10-year UK gilt yield fell to a 4-week low of 4.527% and is down -10.8 bp to 4.532%.

The Eurozone Mar S&P composite PMI was revised upward by +0.5 to a 7-month high of 50.9 from the previously reported 50.4.

The Eurozone Feb PPI rose +3.0% y/y, right on expectations and the fastest pace of increase in almost 2 years.

The account of the ECB's March 6 meeting stated that policymakers are considering both a rate cut and a pause possible for their April meeting, depending on incoming data.

Swaps are discounting the chances at 85% for a -25 bp rate cut by the ECB at the April 17 policy meeting.

US Stock Movers

Today's selloff in the Magnificent Seven stocks is weighing on the overall market.  Apple (AAPL) is down more than -8% since it is one of the companies most exposed to tariff risks.  Also, Amazon.com (AMZN) and Meta Platforms (META) are down more than -6%, and Nvidia (NVDA) and Tesla (TSLA) are more than -5%.  In addition, Alphabet (GOOGL) is down more than -3%, and Microsoft (MSFT) is down more than -2%.

Chip makers are plunging today.  Marvell Technology (MRVL), Micron Technology (MU), and Microchip Technology (MCHP) are down more than -7%.  Also, Broadcom (AVGO) and Lam Research (LRCX) are down more than -6%.  In addition, NXP Semiconductors NV (NXPI), ON Semiconductor (ON), Qualcomm (QCOM), KLA Corp (KLAC), and Applied Materials (AMAT) are down more than -5%. 

Consumer stocks, retailers, and apparel makers, which source most of their goods from Asia, are sinking today.  Deckers Outdoors (DECK) is down more than -14% to lead losers in the S&P 500.  Also, Nike (NKE) is down more than -10% to lead losers in the Dow Jones Industrials.  In addition, Lululemon Athletica (LULU) is down more than -10% to lead losers in the Nasdaq 100.  Finally, Skechers (SKX) is down more than -16%, Dollar Tree (DLTR) is down more than -10%, Target (TGT) is down more than -8%, and Walmart (WMT) is down more than -1%.

Travel and leisure stocks are tumbling on concerns tariffs will raise prices for consumers and curb discretionary spending.  Norwegian Cruise Line Holdings (NCLH), Caesars Entertainment (CZR), and United Airlines Holdings (UAL) are down more than -10%.  Also, Carnival (CCL) and Royal Caribbean Cruises Ltd (RCL) are down more than -9%   

RH (RH) is down more than -40% after reporting Q4 revenue of $812.4 million, weaker than the consensus of $831.7 million, and forecast full-year revenue will climb 10% to 13%, below the consensus of +14.6%. 

Lyft (LYFT) is down more than -10% after Bank of America double-downgraded the stock to underperform from buy with a price target of $10.50. 

Defensive food makers and beverage companies are moving higher with the plunge in the broader market.  As a result, Mondelez International (MDLZ) is up more than +3%, and Coca-Cola (KO) is up more than 2% to lead gainers in the Dow Jones Industrials.  Also, General Mills (GIS), Kraft Heinz (KHC), and PepsiCo (PEP) are up more than +2%.  In addition, Tyson Foods (TSN) and Conagra Brands (CAG) are up more than +1%. 

Lamb Weston Holdings (LW) is up more than +9% to lead gainers in the S&P 500 after reporting Q3 adjusted EPS of $1.10, stronger than the consensus of 87 cents, and forecasting full-year adjusted EPS of $3.05-$3.20, the midpoint above the consensus of $3.08.

Earnings Reports (4/3/2025)

Acuity Inc (AYI), Conagra Brands Inc (CAG), Lamb Weston Holdings Inc (LW), and MSC Industrial Direct Co Inc (MSM).