Uncertainty about global trade continued to be at the top of investors’ minds as Trump announced 25% tariffs on Mexico and Canada while levying 10% on Chinese goods. Mexico and Canada’s immediate reaction was to place tariffs on US goods. But an about-face mid-morning on Monday saw Mexico’s President Sheinbaum and Canada’s Prime Minister Trudeau turn instead to negotiation, which led to Trump’s tariffs being delayed until March. China’s response was much more muted but did induce a 15% tariff on US LNG and coal and a 10% tax on US crude oil, agriculture equipment, and automobiles. China also announced it would put export bans on some rare earth metals and probe both Google and Apple for anti-trust violations. Trump also announced that levies on European and Japanese goods were in the works and that reciprocal tariffs would be imposed on other countries. All of this has Wall Street wondering what the ultimate ramifications will be. Will this be inflationary and inhibit growth, causing stagnation, or is all the rhetoric just noise to bring trade to the negotiating table? Nobody knows, and Wall Street does not particularly like uncertainty. That said, with all the changes announced by the new Trump administration and its potential disruption, the S&P 500 is just a sneeze away from all-time highs. It feels like there is some complacency in this market, and perhaps we are due for some constructive consolidation. Volatility will continue to be prevalent.
One hundred thirty-one companies of the S&P 500 announced earnings over the week, and results continued to be mixed but positively skewed. So far, 75% of the companies that have reported beat estimates on earnings per share, and 66% have beat revenue estimates. The aforementioned uncertainty has tempered some guidance, with 8% of the companies that have reported lowering forward guidance. 5% of companies have raised forward guidance. Google and Amazon shares were hit hard after investors raised questions about the return on investment on Capex spending related to AI. Google announced that it would spend $75 billion on AI infrastructure. Palantir and Phillip Morris International had blowout quarters that saw shares rise after their results were announced. Qualcomm, Pepsi, and Merck had disappointing results.
The S&P 500 fell by 0.2%, the Dow lost 0.5%, the NASDAQ shed 0.5%, and the Russell 2000 was lower by 0.3%. Market action across the yield curve saw short-tenured paper underperform longer-duration Treasuries. The 2-year yield rose by four basis points to 4.28%, while the 10-year yield declined by eight basis points to 4.49%. The Bank of England lowered its policy rate by twenty-five basis points with a more dovish posture from the Monetary Policy Committee.
Oil prices continued to slide, losing 2% or $1.51 to close at $70.95 a barrel. Gold prices extended gains with an increase of 1.8% to close at $2887.10 an Oz. Copper prices increased by 7.7% to close at $4.60 per Lb. Bitcoin prices tumbled 6.1% to close the week at $95,846. The US Dollar index declined by 0.4% to 108.05.
