Investing.com -- The S&P 500 closed sharply higher Tuesday as traders weighed a slew of mostly upbeat quarterly earnings and concerns about another US-China trade war, though President Trump's recent concessions offered to Canada and Mexico sparked hope that a trade war may be averted.
At 4:00 PM ET, the Dow Jones Industrial Average was up 142 points, or 0.3%, while the S&P 500 index climbed 0.72%, and the NASDAQ Composite gained 262 points, or 1.4%.
Beijing retaliates against Trump tariffs
US President Donald Trump postponed proposed 25% import duties on Canada and Mexico by 30 days, but he offered no such forgiveness for Beijing, with his 10% tariffs on goods from China taking effect earlier Tuesday.
Beijing retaliated, slapping a 15% tariff on coal and liquified natural gas imports from the U.S., and an additional 10% duty on crude oil, agricultural equipment and automobiles from Feb. 10.
China’s commerce ministry also placed export controls on rare earths and exotic materials, of which the country is a top producer. The materials covered included tungsten, tellurium, ruthhenium, and molybdenum.
Separately, Beijing added Calvin Klein-owner PVH Corp (NYSE:PVH) and biotechnology firm Illumina (NASDAQ:ILMN) to its list of unreliable entities, and initiated an antitrust investigation into Alphabet-owned Alphabet (NASDAQ:GOOG).
The retaliatory measures pointed to the start of a renewed trade war between the world’s biggest economies, with investors now bracing for further escalation, given Trump’s hawkish stance against Beijing.
China accounts for substantial portion of US imports, with any retaliation from Beijing likely to further destabilize global trade. China is the US's third-biggest trading partner behind Mexico and Canada.
While it was expected that Trump and China's Xi Jinping would speak on Tuesday to discuss trade, White House officials said that won't happen.
Worries about additional Fed rate cuts
Amid the uncertainty surrounding the ongoing tariffs, some on Wall Street are expecting the Fed to be more cautious about cutting rates further. Today, economists at Morgan Stanley (NYSE:MS) said they now only see one rate cut in 2025 versus the two they had previously expected.
"On-again-off-again tariff uncertainty should raise the hurdle for Fed cuts, and we now tentatively look for only one rate cut this year in June," economists led by Michael Gapen said.
Alphabet to report after the close
There are a large number of important companies set to report this week.
Earlier Tuesday, PepsiCo (NASDAQ:PEP) stock fell 4.5% after the soft drinks giant reported tepid organic revenue growth as price hikes weighed on demand from cost-conscious U.S. shoppers.
Spotify (NYSE:SPOT) stock surged 13.3% after the music streaming company reported fourth-quarter 2024 results that exceeded revenue expectations while also providing upbeat guidance.
Palantir (NASDAQ:PLTR) stock soared 24% after the data analytics company forecast upbeat annual revenue fueled by strong demand for its software and data analytics services from businesses racing to adopt generative AI.
Estee Lauder (NYSE:EL) stock fell 16% after the cosmetic giant issued a fiscal third-quarter outlook that missed expectations, with the company citing weak retail sales trends in its Asia travel retail business.
Merck & Company (NYSE:MRK) stock fell 9% after the drugmaker said it will pause shipments of Gardasil to China through at least mid-year, as continued weak demand for the HPV vaccine there is expected to hurt 2025 revenue. This overshadowed a strong fourth-quarter profit on sales of cancer drug Keytruda.
However, the main focus will be on Google-parent Alphabet (NASDAQ:GOOG), which is due to report its latest quarterly returns after the closing bell.
Analysts will be paying close attention to the search giant's plans for spending on artificial intelligence, particularly after the emergence of an AI model from Chinese start-up DeepSeek last week.
Crude falls on global output fears
Oil prices fell Tuesday as traders gauged the potential for severe disruption to global economic activity due to the tariffs between the US and China.
By 2:43 PM ET, the US crude futures (WTI) slipped 0.49% to $72.80 a barrel.
Despite the tariff announcements, the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, maintained their current oil production plans, resisting calls from Trump to lower prices.
This decision underscores the group's commitment to a gradual phase-out of production cuts, set to begin on April 1, contingent on low inventories and rising global demand.
The OPEC+ cartel has been cutting output by 5.85 million barrels per day, equal to about 5.7% of global supply, as agreed in a series of steps since 2022.
(Ambar Warrick and Peter Nurse contributed to this article.)