The S&P 500 reversed early gains to decline by 0.3%, while the Dow Jones extended losses, dropping around 330 points, as investors weighed trade tensions against easing inflation pressures.
US stocks cut gains
Meanwhile, the Nasdaq trimmed its earlier gains, rising just 0.1% on Wednesday, as optimism from a lower-than-expected CPI report was overshadowed by escalating trade disputes.
A 25% U.S. tariff on steel and aluminum imports from Canada, Australia, the EU, and other trading partners officially took effect today, prompting swift retaliatory actions. The European Union announced counter-tariffs on €26 billion worth of American goods, set to begin in April, targeting key U.S. exports such as steel, aluminum, textiles, and agricultural products. Canada also revealed its own countermeasures, imposing $29.8 billion worth of retaliatory tariffs, which will go into effect tomorrow. The intensifying trade conflict has raised fears of a prolonged economic strain, with analysts warning that these measures could push inflation higher in the coming months by increasing import costs.
Inflation data offer some relief
Despite the trade uncertainty, the latest inflation data offered some relief. Both headline and core inflation came in below expectations, reinforcing hopes that disinflation remains on track. However, some analysts caution that the full impact of the new tariffs has yet to be reflected in economic data, and inflationary pressures could resurface as businesses pass higher costs onto consumers.
Sector performance was mixed, with consumer staples, healthcare, and utilities leading the declines as investors rotated away from defensive stocks. The technology sector initially surged but later pared some of its gains, managing to stay in the green. Chipmakers and AI-related stocks saw continued investor interest, although some profit-taking was observed after recent strong rallies.
Macro impact on US stocks
Looking ahead, market participants are closely watching upcoming economic data releases, Federal Reserve commentary, and any potential diplomatic efforts to de-escalate trade tensions. With earnings season approaching, corporate guidance on inflation and trade-related impacts will also play a crucial role in shaping market sentiment in the weeks to come.
