Stocks Rise as Trump Imposes Milder Tariffs

Wall Street has been busy all week buying and selling on rumors of trade war. Today, President Trump’s promised tariffs became real. The reality wasn’t quite as harsh as initially feared, which helped push stocks into the green.

President Trump signed an order late Thursday afternoon that imposes tariffs of 25% on steel and 10% on aluminum imports from all foreign countries, but carves out an exception for Canada and Mexico (for now) while North American Free Trade Agreement (NAFTA) negotiations are underway.

The Dow Jones Industrial Average, S&P 500 and Nasdaq closed higher on Thursday. The Nasdaq racked up its fifth consecutive win. How the tariff drama plays out still remains to be seen; volatility is likely to continue.

In other news, the U.S. Labor Department reported on Thursday that initial claims for state unemployment benefits increased 21,000 to a seasonally adjusted 231,000 for the week ended March 3. Claims dropped to 210,000 in the previous week, the lowest level since December 1969.

Economists had expected claims rising to 220,000 in the latest week. It was the 157th straight week that claims remained below the 300,000 threshold.

Additional data on Thursday showed that job cuts implemented by U.S.-based employers declined 20% in February. The upshot: the American labor market is near full employment, which could in turn fuel wage growth and inflation.

The latest economic data came amid a backdrop of simmering tensions over a possible trade war. Investors are on edge as the White House makes good on its “America First” rhetoric.

China and the European Union warned President Trump on Thursday they would retaliate if the U.S. enacted Trump’s proposed tariffs. Trump has hinted at other trade measures to come.

Trump’s tariffs have drawn heavy criticism from leaders in Congress from both parties. There’s now a rift between the “populist” and establishment wings of the Republican party. The recent protectionist measures of the Trump administration have rattled financial markets.

The tariff roller coaster…

Stock markets have been on a roller coaster all week, as investors react to intraday headlines regarding trade.

The pattern has been for the markets to open with steep losses but then pare back much of those declines in the final minutes of trading, as the administration issues clarifications and compromises.

Trade war fears are stoking volatility but they haven’t torn down the stock market — not yet anyway.

On Thursday, the European Union issued a stern warning to the U.S. “We have a whole arsenal at our disposal with which to respond,” European Financial Affairs Commissioner Pierre Moscovici said.

Retaliatory trade measures would include European tariffs on products produced by red states controlled by the Republican party, such as tobacco, bourbon, oranges, and motor cycles. “We want Congress to understand that this would be a lose-lose situation,” Moscovici said. The EU is by far the largest trading partner of the U.S.

The Dow and S&P 500 both fell on Wednesday, in the wake of the resignation of the president’s top economic advisor Gary Cohn. A free trader, Cohn had opposed the tariffs on steel and aluminum and quit in protest.

The two main indices opened Wednesday with steep losses but clawed back much of those losses after the White House announced in the late afternoon that there might be exemptions for favored trading partners from the tariffs. The markets still ended Wednesday in the red amid highly volatile trading, but by the closing bell, investors actually sighed in relief that the declines weren’t worse. That relief extended into Thursday and provided a mild tailwind for equities.

On Thursday, the Trump administration decided that Canada and Mexico would be spared from the measures. Problem is, the George W. Bush administration took this route in the past. It proved a colossal failure.

In 2002, the White House imposed tariffs of up to 30% on all imported steel in an attempt to protect U.S. producers. Canada and Mexico were exempt; their steel exports to American surged to even higher levels.

The World Trade Organization (WTO) ruled against the U.S., prompting the Bush administration to drop the tariffs in 2003. Investors with a sense of history know all this. The WTO is likely to weigh in on the tariff proclamations that Trump signed today.

Thursday Market Wrap

  • DJIA: +0.38% or +93.85 points to close at 24,895.21
  • S&P 500: +0.45% or +12.17 points to close at 2,738.97
  • Nasdaq: +0.42% or +31.30 points to close at 7,427.95

Thursday’s Big Gainers

  • United Microelectronics (NYSE: UMC) +12.39%

Analysts bullish on chipmaker.

  • Aquantia (NYSE: AQ) +10.04%

Fabless semiconductor firm enjoys booming demand.

  • Orion Group Holdings (NYSE: ORN) +7.89%

Construction firm posts strong earnings.

Thursday’s Big Decliners

  • Kroger (NYSE: KR) -12.40%

Grocery chain under pressure from Amazon (NSDQ: AMZN).

  • American Eagle Outfitters (NYSE: AEO) -9.46%

Apparel retailer disappoints on sales.

  • Buckle (NYSE: BKE) -8.97%

Apparel retailer posts quarterly slump.

Letters to the Editor

“What are the major advantages of an ETF?” — Ellen H.

Many research studies show that, year after year, the average stock picker earns less than the market averages. With an exchange-traded fund (ETF), you’re not tempted to shift your funds from a loser to a perceived winner. You’re freed of any frantic efforts to buy low and sell high. Compulsion and emotion are taken out of the equation.

ETFs charge annual fees that are only a small fraction of what an actively traded fund charges, because the latter need highly paid talent to conduct research and conceive strategy.

ETFs involve less stress but remember, they don’t protect you from the market’s inevitable declines. That’s why I recommend a combination of passive and active investing. In uncertain times like these, it’s wise to take proactive measures, such as elevating cash levels and using “stop loss” orders.

Questions about ETFs? Drop me a line:

John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.