Wall Street falls as Trump imposes tariffs, but not as badly as feared

The threat of a punishing trade war sent Wall Street on a rollercoaster on Monday, with indexes initially falling sharply on worries about Donald Trump’s tariffs before paring their losses after Mexico said it had negotiated a one-month reprieve.

The S&P 500 ended up falling 0.8% after Asian and European indexes logged worse drops. The Dow Jones Industrial Average lost 122 points, or 0.3%, and the Nasdaq composite sank 1.2%.

The US stock market had been on track for a much worse loss at the start of trading on worries about how much pain US companies would feel because of the tariffs. The S&P 500 was briefly down nearly 2%, and the Dow dropped as many as 665 points.

Some of the heaviest losses hit Big Tech and other companies that could be hit most by the higher interest rates that could result from the US tariffs announced on imports from Canada, Mexico and China.

The ultimate fear is that the US president’s tariffs will push up prices for groceries, electronics and all kinds of other bills for US households, putting upward pressure on a US inflation rate that has largely been slowing since its peak three summers ago.

Stubbornly high or accelerating inflation could keep the Federal Reserve from cutting interest rates, which it began doing in September to give the economy a boost.

Profits for US companies, meanwhile, could face downward pressure from slowing global trade.

But US stocks eased their losses after Mexican President Claudia Sheinbaum said tariffs on her country’s goods are on hold for a month after a conversation with Mr Trump. The Dow even turned briefly higher in the afternoon for a small gain.

Much of Wall Street had been hoping Mr Trump’s talk of tariffs through the presidential campaign was just talk, and an opening point for negotiations with US trading partners.

Monday’s swivel on Mexico, and later for Canada as well, leaves open the question of whether Mr Trump is using tariffs as a tool for negotiations.

But when traders came into Monday morning thinking tariffs were imminent, fear rose quickly about the potential for an escalating trade war that could damage economies worldwide, including the US.

Crude oil prices swung amid the uncertainty. The price for a barrel of benchmark US crude went from 72.53 dollars on Friday to nearly 75 dollars before the US market opened on Monday to briefly falling back towards 72 dollars.

Mr Trump warned Americans they may feel “some pain” from the tariffs, which he said would be “worth the price” to make America great again. He also said on Sunday night that import taxes will “definitely happen” with the European Union and possibly the UK as well.

Some on Wall Street remain sceptical about how long a trade war may last, especially considering how much attention the president pays to the stock market. An escalating trade war can send stocks skidding, as Monday morning quickly demonstrated, and “significant stock market volatility could lead to a change in approach”, said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management.

Constellation Brands, the company that sells Modelo and Corona beers in the United States, fell 3.5%. Best Buy, which sells electronics made around the world, lost 2.4%. Brown-Forman, the company behind Jack Daniel’s that sells alcohol in Canada, fell 3.3%.

All told, the S&P 500 fell 45.96 points to 5,994.57, the Dow dropped 122.75 points to 44,421.91, and the Nasdaq composite sank 235.49 to 19,391.96.

Instead of stocks and crypto, whose prices also fell in the tumult, investors moved into longer-term US government bonds, which are seen as some of the safest investments. The resulting rally in their prices drove Treasury yields down.

The yield on the 10-year Treasury edged down to 4.53% from 4.55% late on Friday after earlier dropping as low as 4.46%.

It is a reprieve, at least temporarily, from a rise in longer-term Treasury yields that had shaken Wall Street in recent months. Yields had climbed in part on worries about the possibility of higher interest rates because of stubbornly high inflation.

Short-term Treasury yields rose on Monday as expectations waned for cuts to rates from the Fed. The yield on the two-year Treasury rose to 4.25% from 4.21%

Higher yields put pressure on all kinds of investments, but they are particularly burdensome on stocks seen as the most expensive.

That puts the spotlight on companies like Nvidia and other winners of the artificial-intelligence boom. Nvidia fell 2.8% and was one of the heaviest weights on the S&P 500.

AI superstars had already come under pressure last week after a Chinese upstart said it had developed a large language model that could perform as well as big US rivals, but without having to use the most expensive, top-flight chips.

Mr Trump’s tariffs took centre stage in a week where other events would typically take the spotlight, including a report on Friday showing how many workers US employers hired last month. A series of profit reports are also due this week from Alphabet, Amazon and other influential companies.