Trade war bullets start flying

Tariff angst and growth concerns ultimately got the better of the stock market yesterday, and judging by the look of the equity futures market, there is more for those issues to get at today’s open.

Currently, the S&P 500 futures are down 37 points and are trading 0.6% below fair value, the Nasdaq 100 futures are down 141 points and are trading 0.6% below fair value, and the Dow Jones Industrial Average futures are down 130 points and are trading 0.3% below fair value.

The 25% tariff rates for Canada and Mexico are now in effect, as is the additional 10% tariff rate, bringing it to 20%, for imported goods from China. The crux of the matter this morning, though, is that China and Canada have announced retaliatory actions. Mexico hasn’t announced actions yet, but previously vowed retaliation.

• China retaliated with additional tariffs up to 15% on certain U.S. products (mostly agricultural) starting March 10
• Canada retaliated with 25% tariffs against $155 billion of American goods, starting with tariffs on $30 bln worth of goods immediately and the remainder in 21 days’ time

The issue is that trade war bullets are now flying across geographic lines. It is not a good situation. The capital markets are responding to the uncertainty of a trade war, and the growth outlook, by adopting a more risk-averse mindset.

That risk aversion has manifested itself in falling stock prices, rising Treasury prices, and a spike in the CBOE Volatility Index. The 2-yr note yield is down seven basis points to 3.91%, with the fed funds futures market now pricing in three rate cuts in 2025 (versus two before), and the 10-yr note yield is down four basis points to 4.14%.

The mega-cap stocks, namely NVIDIA (NVDA) and Tesla (TSLA), have applied a heavy hand to the market cap-weighted indices with their material declines. Thus far, the eagerness to buy the dip has been repelled by the aura of a momentum unwind, technically-charged selling, and the disappointing price action where selling into strength has supplanted buying the dip as the prevailing trade.

Neither Best Buy (BBY) nor Target (TGT) has been able to shift the narrative with their earnings results and guidance. Target’s CEO acknowledged the consumer has been cautious for sometime and warned consumers will see price increases soon. Best Buy’s CEO, meanwhile, said price increases are highly likely for the American consumer as a result of the tariffs.

President Trump will undoubtedly talk about his tariff plans, and other policies, when he delivers an address to a joint session of Congress tonight at 9:00 p.m. ET.  In a Truth Social Post, the president said he will “tell it like it is” in tonight’s speech.

We’ll see how that translates into market pricing come Wednesday, but for now, the market is telling it like it is, and it is acting worried by what it is seeing and hearing on the trade front and in the economic data.

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Originally Posted March 4, 2025 – Trade war bullets start flying