8 hours Ago By kuwaittimes
NEW YORK: Investors are bracing for a looming hit to US corporate profits and pressure on inflation if President Donald Trump makes good on his tariff threats, with markets seen as not fully factoring in risks from higher levies on foreign imports. President Donald Trump is vowing to issue tariffs on Canada, Mexico and China, the three largest US trading partners. As the tariff deadline nears, investors have been trying to gauge whether the potential duties on imports might be a negotiating tool, as Trump and members of his administration have addressed the topic over the past week.
“It’s adding a lot of volatility to expectations because of the back and forth and the rhetoric on a daily basis,” said Leo Harmon, chief investment officer at Mesirow Equity Management. Harmon said he expects some level of tariffs to be implemented with the market reaction dependent on the extent of the duties. “If those tariffs come in higher than expectations.
.. there could be a potential for a day or two of risk-off leadership in the market,” Harmon said.
Barclays strategists estimate that the tariffs could lead to a 2.8 percent drag on S&P 500 company earnings, including the projected fallout from retaliatory measures from the targeted countries. “You’re having global supply chains that are going to have to be reworked or rethought,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.
”It can increase cost structures for companies.” Some tariffs will be passed on to consumers in the form of higher prices, LPL Research analysts said earlier this month. Goldman Sachs economists have estimated that across-the-board tariffs on Canada and Mexico would imply a 0.
7 percent increase in core inflation and a 0.4 percent hit to gross domestic product. The potential to drive up consumer prices is a particularly sensitive area for investors, who are worried about a revival in inflation causing the Federal Reserve to stop cutting interest rates.
The US central bank this week paused its rate-cutting cycle, while Fed Chair Jerome Powell said officials were “waiting to see what policies are enacted” with the new president. Gene Goldman, chief investment officer at Cetera Financial Group, said he expected weakness in equity markets if Trump goes through with tariffs this weekend. “The combination of high valuations .
.. and the inflation-inducing effect of tariffs and the consequent effect on Fed policy would cause stocks to sell off,” Goldman said.
Jim Smigiel, chief investment officer at SEI, said markets could start factoring in the possibility of interest rate rises if tariffs set off inflation. — Reuters “The non-zero probability of a hike I think has crept into investors’ minds,” Smigiel said. With the S&P 500 near all-time highs, the index could move 3 percent to 5 percent in either direction in the short term, depending on what Trump announces with tariffs, Evercore ISI strategists said in a note.
— Reuters.
