The announcement of Trump doubling tariffs on Canadian steel and aluminium may not greatly impact the economy, but it raises concerns about his approach towards the market. There is a belief that Trump prioritises the stock market, as evidenced by his pledge to maintain a substantial corporate tax cut and challenge Europe on digital services taxes.
Following this announcement, the S&P 500 index declined by 44 points, approaching its previous low. Currently, the index has fallen by 58 points, equating to a 1% decrease. The use of emergency powers in this context suggests that the additional tariffs may not be long-lasting.
Impact On Short Term Trading
This development suggests that while the broader economy may not feel immediate repercussions, those engaged in active trading must carefully assess its potential effects on short-term market movement. The drop in the S&P 500 index following the tariff announcement signals that traders have already responded with selling pressure, and the index’s continued decline highlights ongoing uncertainty.
Given that the new duties were introduced using emergency powers, there is a reasonable chance they could be reversed quickly, which may prompt shifts in sentiment. Markets have reacted negatively before to sudden policy decisions, especially those perceived as politically motivated rather than economically grounded. If traders anticipate a rollback, it could temper further declines.
The connection between policymaking and equity markets has been evident throughout this administration. By reaffirming tax reductions for corporations and pressing European regulators on digital levies, the message is clear—equity performance plays a role in decision-making. The implication for trading strategies is that policy shifts could continue to influence market movements more than traditional economic indicators.
Future Market Volatility
The immediate decline in equities sits within a broader trend of sensitivity to external factors. When policy actions introduce unpredictability, traders often adjust positions quickly. Since tariff measures can be reversed or modified, any assumption that they will remain in place indefinitely could be misplaced.
Short-term movements indicate there may be further volatility ahead. Those who trade based on index performance should remain attentive to any indication that these tariffs may be softened or countered by other economic measures. The underlying signal in this decision is as much about political positioning as it is about economic policy. Market participants should not overlook that dynamic when considering their next steps.
