Investing.com -- The S&P 500 fell on Friday after reports that President Donald Trump’s latest tariffs on key US trading partners would take effect on Saturday.
The index slipped 0.50% to close at 6,040.53, while the Dow Jones Industrial Average dropped 337.47 points, or 0.75%, pressured by a decline in Chevron (NYSE:CVX). The Dow ended the session at 44,544.66. The Nasdaq Composite, which is heavily weighted toward tech stocks, edged down 0.28% to 19,627.44.
Following a steep 3.07% drop on Monday, the Nasdaq finished the week down 1.6%. The S&P 500 lost 1% over the same period, while the Dow managed to gain 0.3%. Nvidia (NASDAQ:NVDA), which plunged nearly 17% at the start of the week, closed with a weekly loss of around 16%.
Friday also marked the end of a turbulent January for markets. Despite the volatility, all three major indexes finished the month higher. The S&P 500 gained 2.7%, the Nasdaq rose 1.6%, and the Dow led the way with a 4.7% advance.
Trump starts trade war with Mexico, Canada, China tariffs
President Donald Trump on Saturday announced broad tariffs on imports from Mexico, Canada, and China, aiming to curb the flow of fentanyl and, in the case of Canada and Mexico, illegal immigration. The move escalates trade tensions, raising concerns about global growth and inflation.
Mexico and Canada, the top US trading partners, quickly pledged to retaliate, while China said it would challenge the tariffs at the World Trade Organization and take other "countermeasures."
Trump’s executive orders impose a 25% tariff on most imports from Mexico and Canada and a 10% duty on Chinese goods, starting Tuesday. He vowed to maintain the levies until what he called a national emergency over fentanyl and illegal immigration is resolved.
The White House did not specify the conditions needed to lift the tariffs. Responding to pressure from oil refiners and Midwestern states, Trump set a lower 10% tariff on Canadian energy products, while Mexican energy imports face the full 25% duty.
Canadian Prime Minister Justin Trudeau announced 25% tariffs on $155 billion worth of US goods, with an initial $30 billion taking effect Tuesday and the rest in three weeks. He warned Americans that Trump’s tariffs would increase grocery and fuel prices, disrupt auto manufacturing, and affect supplies of key resources like nickel, uranium, and aluminum. Trudeau also urged Canadians to avoid US travel and boycott American products.
The week ahead
This week, while debating the impact of the tariffs, investors will also be scrutinizing several important economic reports. The week begins with global PMI surveys and ends with the US monthly employment report, both offering key insights into central bank policy directions.
Attention will build toward Friday’s US jobs report, which could influence the ongoing interest rate debate. Despite pressure from President Trump for lower rates, the Federal Reserve kept its benchmark rate at 4.25-4.50% in January after three consecutive cuts.
Many analysts believe broad tariffs and immigration restrictions could drive US inflation higher. At the same time, pro-business policies under the new administration have boosted optimism and hiring, potentially adding to price pressures.
As a result, the January payrolls report will be closely watched to gauge whether hiring has picked up and if wage growth is keeping pace.
“While the January jobs report will be impacted by the wildfires & snowstorms, we forecast a solid 200k (56k below previous print) increase in nonfarm payrolls (170k private),” Bank of America said in a note.
“The u-rate should remain steady at 4.1%. On the manufacturing front, the manufacturing recession might be over, and we think the ISM manufacturing index is likely to break above 50,” it added.
Investors await another eventful earnings week
The fourth-quarter earnings season has shown strong results overall, with recent market movements largely driven by earnings trends.
Among S&P 500 companies, 78% have surpassed consensus estimates for earnings per share, slightly lower than the previous update, while 67% have exceeded revenue expectations.
“Both Large Caps and Small Caps that have reported have been behaving logically, with earnings beats outperforming in terms of immediate price action post results while misses are lagging,” RBC Capital Markets strategists noted.
“This is an important point, as the stock market appeared to be largely ignoring the busy news flow out of Washington last week,” they added.
Like the previous, this week is set to be another busy one for earnings, with companies like Palantir (NASDAQ:PLTR), Alphabet (NASDAQ:GOOGL), AMD (NASDAQ:AMD), Super Micro Computer (NASDAQ:SMCI), Pfizer (NYSE:PFE), MicroStrategy Incorporated (NASDAQ:MSTR), Arm Holdings ADR (NASDAQ:ARM), Qualcomm (NASDAQ:QCOM), and Eli Lilly (NYSE:LLY), among others, scheduled to report in the coming days.
What analysts are saying about US stocks
RBC Capital Markets: “Our 6,600 year-end 2025 S&P 500 price target has assumed we would get at least one 5-10% drawdown in the index, and we’ve been on guard for such a pullback early in the year. The onset of tariffs on Mexico/Canada/China raises the risk that this will occur for a few reasons. US equities have looked overbought in terms of our positioning work as well as valuation.”
Goldman Sachs: “Large tariffs pose downside risk to our S&P 500 earnings estimates and return expectations.”
“We estimate that every 5pp increase in the US tariff rate would reduce S&P 500 EPS by roughly 1-2%. As a result, if sustained, the tariffs announced this weekend would reduce our S&P 500 EPS forecasts by roughly 2-3%, not taking into account any additional impact from major financial conditions tightening or a larger-than-expected effect of policy uncertainty on corporate or consumer behavior.”
Evercore ISI: “Our base case is a -3% to -5% pullback in SPX based on the Surprise reaction to Tariffs, consistent with a Bull Market bound for 6,800 that at an expensive 22.5x 2025 EPSe will react sharply to any perceived “Less Than Perfect” news. However, President Trump’s remark on Friday “Not concerned about market reaction around tariffs” makes -5% more likely. We would begin buying selectively at the 100 DMA, 5,881, which halted the post Fed selloff in early January.”
BTIG: “ Last week started off and ended with some ugly news-driven price action. While internal rotation is trying to occur, S&P has now had three failures at the 6100 level. We continue to think we see a deeper pullback this quarter.”
JPMorgan: “We believe that the needed drivers revolve around US exceptionalism strength, specifically the USD direction, tariffs news, China stimulus and the bond yields direction, in addition to the Mag-7 outlook. In a nutshell, for the broadening rotation one needs weaker USD, benign tariffs backdrop, China acceleration, well behaved bond yields, and waning Mag-7 leadership.”