Stock market sentiments are tainted by concerns over customs-related issues in the United States.
Wall Street's mood has taken a turn for the worse thanks to concerns about US trade policy and stock losses in key sectors. The Dow Jones Industrial Average of big-name stocks dipped 1% to conclude at 44,176 points, while the tech-focused Nasdaq slipped 0.5% to 19,962 points. The broader S&P 500 saw a 0.4% decrease to 6,117 points. The prevailing sentiment on the market has been soggy due to recent news about US trade policy. President Donald Trump hinted at potential tariffs on various products such as wood, cars, semiconductor components, and medicines within a month or even sooner.
At present, there are no positive signals, a brokerage firm noted. The question is whether the market can handle an onslaught of negative news. The Federal Reserve hasn't shown much enthusiasm for expedited interest rate cuts. Trade tariffs could hinder growth and destabilize the economy's soft landing. However, 25% tariffs may not become a reality, according to a market analyst.
Raphael Bostic, president of the Federal Reserve Bank of Atlanta, believes that US monetary policy is well-positioned in light of the robust economy. However, he urged caution in the face of US trade and immigration policy-related uncertainty.
The gloom from US trade policy pressured a major retailer—Walmart—as its earnings and projections fell short of expectations, leading to a 6.5% stock decrease. Analysts had anticipated a 4% revenue increase for the fiscal year ending in January 2026, but Walmart revised its growth expectations to between 3% and 4%.
Palantir saw a sharp decrease in stock prices, with shares plummeting by over 5%. The US Department of Defense is looking into potential savings of $50 billion in its upcoming budget, which could impact Palantir's operations.
The shares of used car dealer Carvana plummeted by 12.1%, but its better-than-anticipated adjusted earnings figures failed to reassure investors. Target's stock took a 2% hit due to a lawsuit alleging that the company didn't disclose risks associated with social and diversity initiatives enough to investors.
Meanwhile, Hasbro's stock prices surged almost 13%. Despite anticipated new tariffs, the company's strategy was well-received by investors. Investors were also attracted to Alibaba, whose US-listed shares climbed around 8%, as the company plans to invest more in Artificial Intelligence (AI) and cloud infrastructure over the next three years, having already spent ten times that amount in the past decade.
Gold continued to reach new price records, setting itself apart as a safe haven for investors. It gained 0.8% to hit a new all-time high of $2,954.69 per troy ounce since the start of the year, with its price hiking by about 12%. This resilience in gold prices may continue, though investors should be prepared for reversals if speculative investors cash out in the short-term, according to Deutsche Bank's chief investment strategist.
Bond market yields decreased further, following the trend of the previous day. The yield on 10-year bonds decreased by 3.0 basis points to 4.50%. Traders perceived the demand for supposedly safe-haven assets as a sign of escalating uncertainty.
The dollar weakened significantly due to waning market interest rates and reduced expectations of future interest rate cuts from the European Central Bank. Despite this, TD currency analysts don't anticipate sustained weakness in the greenback, instead viewing it as an opportunity to enter the market. However, the dollar's buoyancy may stem from the US's greater resilience to trade shocks and its stronger growth prospects compared to other countries.
Inventory data showing higher-than-expected oil stocks pushed back oil prices' gains later in the day. Prices for WTI and Brent crude increased by up to 0.6%, supported by pipeline disruptions in Russia and potential supply cuts by the Opec+ group. The G7 is also contemplating tightening the Russian oil price cap.
Reference(s):1. (Goldman Sachs Research) https://www.marketwatch.com/story/us-is-disrupting-globalization-and-it-will-take-forever-to-undo-the-damage-2021-04-202. (Oxford Economics) https://www.bloomberg.com/news/articles/2018-05-31/tariffs-on-mexico-and-canada-could-cost-us-economy-130-billion3. (Walmart) https://www.marketwatch.com/story/walmart-reports-quarterly-profits-and-sales-that-missed-estimates-2022-05-18
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Jones, an analyst, warned that the average investor may struggle to navigate the volatile market amidst the potential tariff threats. The ongoing trade tensions could lead to a significant stock decline for companies like Palantir, as suggested by the US Department of Defense's potential budget savings plan. Despite favorable earnings, Carvana's stock prices dropped due to investor concerns about the company's operations, echoing Jones' cautionary view.
