US Session: Wall Street Starts Lower

The indices open with significant declines, and the dollar strengthens, while the yield on short-term government bonds exceeds expectations due to concerns that extensive US tariffs could hinder global economic growth and fuel inflation. The S&P 500 drops by 1.41%. Automobile manufacturers with significant exposure to Mexico, Canada, and China suffer substantial losses. Semiconductor companies, which are likely to be in the geopolitical crosshairs, were also hit. With new tariffs threatening to disrupt the tightly integrated North American oil market, energy stocks also fell.

While the dollar erases some of its earlier gains, which had previously placed it on track for its biggest rise since the pandemic began, it is still up against almost every major currency. The two-year bond yield rises by up to eight basis points to 4.28%, while the yield on longer-term bonds drops, flattening the yield curve. Such moves are typically associated with stagflation – when inflation and high interest rates hurt short-term bonds, only to make long-term debt more attractive due to the resulting slower growth.

“The uncertainty at this stage is massive – not only about how these future negotiations will play out, but also concerns that this is just the tip of the iceberg and that more tariffs are on the horizon,” said Yong-Yu Ma from BMO Wealth Management. “While we believe that tariffs are primarily a negotiating tool for President Trump, it is very difficult to say whether these tariffs will be short-lived or if there is a scenario where a deal will be struck that reduces them.”