Stock Market Optimism Surges on Possible Tariff Relaxation
Wall Street Climbs on Trade Deal Hopes Amid High Inflation Warnings
As the week winds down, Wall Street is displaying a rosy outlook, fueled by optimism surrounding easing trade disputes – including those instigated by US President Trump. However, economic data indicates that Trump's trade policies are causing inflation.
US stock markets concluded their final trading day of the week on an upward swing, with positive signs of de-escalation in the US-China trade dispute underpinning price movements. Disappointing economic data temporarily dampened the momentum, but the enthusiasm persisted. The Dow Jones Index surged by 0.8% to touch 42,655 points. The S&P-500 and the Nasdaq Composite grew by 0.7 and 0.5%, respectively. Preliminary data from the New York Stock Exchange indicated 1,916 stocks had gained (an increase from the previous day), while 831 had fallen. Bond yields provided some support, with the yield on 10-year notes dropping by 2 basis points to 4.44%.
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The current focus in market circles remains the US-led trade disputes. Insiders suggest that the US government intends to discuss agricultural tariffs and other trade barriers with the European Union in upcoming trade negotiations. Information obtained from relevant parties states that the US agenda will also address concerns related to economic security and digitalization.
While trade issues have yet to be resolved, some investors express cautious optimism. Alexandra Wilson-Elizondo of Goldman Sachs attributes this optimism to a strong first-quarter earnings season and the easing of tensions between China and the US. If the trade dispute is temporarily set aside (for the next 90 days), matters pertaining to the budget, taxes, and deregulation will be thrust into the spotlight. Albeit with risks, most unfavorable developments may have already been priced in.
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Cautionary Inflation Warnings
US import prices exceeded expectations in April, signaling tariffs – especially those imposed on China – are causing inflationary pressure. The increase in imports was just 0.1 percent, despite predictions of a 0.4% decline stemming from the dampening effect of lower oil prices. Excluding lower oil prices, imports would have increased by 0.4%. According to market analysts, these figures indicate strong inflationary pressure from the tariffs.
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Housing starts in April declined less than expected, and the University of Michigan's consumer sentiment index took an unexpected dive. The survey's findings on high inflation expectations were particularly disconcerting. Following the increase in US import prices, this is the second piece of negative news in a single day regarding the inflationary impact of Trump's tariffs. This ushering of inflation typically sparks consumption hesitation or forward buying rather than long-term purchasing intentions.
Boeing Falls Short on Impressions
Boeing (-0.2%) ended up losing ground despite Etihad Airways placing an order for 28 wide-body aircraft from the US aircraft manufacturer. The order includes a mix of Boeing 787 and 777X jets powered by GE engines, as well as a maintenance package. However, the new aircraft are not expected to be operational until the latter part of the decade. Critics have also been harsh, noting Boeing's inability to boost production figures, which are still recovering from the aftermath of the 2019 incidents involving the 737 MAX planes and the 2020 pandemic start, as well as an incident in January 2024 involving an Alaska Airlines Boeing plane losing an emergency exit door.
Two of the largest cable and broadband providers in the US are merging: Charter Communications is acquiring rival Cox Communications for $21.9 billion. In this acquisition, Cox is valued at $34.5 billion, including debt. Shares of Charter Communications found favor with investors, gaining 1.8%.
Applied Materials (-5.3%) saw higher-than-anticipated profits during the second quarter, but the chipmaker's revenue forecast for the future disappointed investors. Take-Two Interactive's (-2.4%) numbers for the fourth quarter were mixed. The company's guidance for the current fiscal year fell short of market expectations.
Dollar Strengthens Slightly - Oil Prices Stabilize
The dollar rebounded slightly, with the Dollar Index gaining 0.2%. The financial implications of higher import prices and inflation expectations have weighed against further interest rate cuts by the U.S. Federal Reserve.
Oil prices recuperated slightly following the previous day's drop. Continuing concerns over OPEC+ production cuts and a potential Iran deal persist, posing pressure on sentiments. A potential deal could result in additional Iranian supplies when the market is already grappling with an oversupply. The gold price erased all its previous day's gains.
For more insights, check out this article.
- The discussion on trade issues between the US and the European Union, including agricultural tariffs and other trade barriers, falls under the realm of both business and politics, as part of the ongoing trade negotiations.
- As inflationary pressures continue to rise due to tariffs, particularly those imposed on China, financial analysts are viewing investments in the equity market with a degree of caution.
- With the US government's focus on trade disputes and the potential for temporary resolutions, employing a community policy or employment policy focused on investment and job creation within the general-news context could prove beneficial. Such plans would address concerns related to economic growth and digitalization, allowing for increased opportunities and a strengthened business environment.
