Market participants are bracing for potential impacts of Trump's tariffs policy on corporate earnings and consumer spending, as economists and strategists forecast that such aggressive tariffs could lead to inflation, effectively reducing disposable income for U.S. consumers.
The market has already been dealing with a high degree of implied volatility, and the latest tariff news is seen as another potential disruptor that could prompt a reassessment of company valuations and contribute to ongoing market volatility.
Analysts are finding it challenging to predict the precise effects of the tariffs on various sectors and sub-sectors.
"Initial market reaction suggests that the tariffs could be more of a political manoeuvre rather than an immediate action – but uncertainty remains an overhang," Jeff O'Connor, Head of Market Structure Americas at Liquidnet, said.
Despite the potential for inflation and the associated concerns about economic growth, the U.S. dollar remains strong. This strength is attributed to the belief that a robust domestic supply chain, reduced imports, and an economy performing better than many others could continue to bolster the dollar.
Even as the market grapples with the reality of the new tariffs, the U.S. economic growth outlook remains positive, especially given the current environment where interest rate cuts are not anticipated.
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