More Uncertainty, But No Panic

Stock market averages opened lower this morning (Dow -170 points; S&P 500 -.3%) on another trade tariff announcement from the Trump Administration. But there’s no sign of real panic. Yes, gold continues to inch up. But the VIX Index—measuring expected volatility in the near future—has stepped down to 18.5 from 28 three weeks ago. And bonds, including safe-haven Treasuries, are trading lower today.

Bloomberg News ran an article this morning that pretty well encapsulates the current investing environment. Titled “Stocks Churn as Trade-War Fears Offset Solid Data,” it explains that economic data remain largely positive but sentiment among consumers, business leaders and investors is definitely souring. The economy expanded at a better than expected 2.4% rate in the fourth quarter of 2024 driven by strong consumer spending and higher corporate profits. And inflation was actually a bit lower than previous estimates. More recent data suggest a resilient labor market; both layoffs and unemployment insurance claims remain low. But “economists, consumers, and businesses are growing wary of the impacts of a trade war.”

For example, the Trump Administration seems bent on imposing significant trade tariffs targeting the auto industry. Today the president signed a proclamation establishing a 25% tariff on all imported vehicles effective April 3rd. While not exactly a surprise, the move does seem to telegraph the administration’s resolve to follow through on its threats. Perhaps this point was hammered home when the president characterized these tariffs as “permanent.” Stocks of companies such as Ford, GM, Rivian, Tesla, Ferrari, Lucid, Toyota, and Stellantis are in their own bear market, which Ritholtz Wealth’s CEO Josh Brown characterizes as a “Texas chainsaw massacre.” While it’s not clear how much of the tariffs will be passed along to end consumers, it’s safe to say vehicle prices are on the rise and automaker profit margins are on the decline.

Of course, autos aren’t the only industry that will be impacted by tariffs. Wall Street analysts are struggling to assess the potential hit to profits for industries thought to be most vulnerable, such as retailers, homebuilders, manufacturers, miners and food & beverage companies. That’s a tall order as evolving government policy has been long on rhetoric and short on detail. The answer to this question really depends on the duration of the trade war. A temporary spike in goods prices isn’t likely to have a long-lasting impact on corporate profits. A protracted fight will do more damage to global supply chains, goods prices, and end demand.

For now, the prognosis for both stocks & bonds is more volatility. Traders are hoping to get some tariff policy resolution on or by April 3nd, but that’s by no means assured.