Equities Response To Proposed Tariffs – Stock Market Overview

Equity indices broke from an upward trend as the threat of tariffs weighed on U.S. companies hesitant to pass along the higher costs. Margins contract as costs are absorbed by companies, diluting future earnings for corporations. Faltering consumer confidence was evident in February as the Consumer Discretionary sector of the S&P 500 Index saw a 7% decrease for the month. Technology saw a 2.26% drop in February, resulting from a lack of corporate capital investment and lessened consumer demand.

Foreign ownership of U.S. equities is currently $17.6 trillion, validating continued confidence in the transparency of the nation’s financial markets. Foreign entities, both governments and institutions, flock to the U.S. equity and bond markets for stability and liquidity. (Sources: Department of the Treasury, Federal Reserve Bank of New York)

Rates Steady As Inflation & Tariffs Alter Sentiment – Fixed Income Update

The U.S. Treasury is considering elongating federal debt, meaning that it would consider extending maturities of bonds rather than issuing short term maturities to fund current government expenditures. Treasury yields fell moderately across the yield curve with the 2 year Treasury yielding 3.99% at the end of February and the 10 year Treasury closing the month at 4.24%. Short term and long term Treasury yields have become flatter, meaning that yields across the maturity curve have become more similar across all maturities. Analysts believe that markets are dictating the direction of rates more so than the Federal Reserve, as Treasury initiatives and the threat of heightened inflation derail Fed plans to continue cutting rates. (Sources: Treasury Dept., Federal Reserve)

Household Asset Valuations Increase To Record Levels – Consumer Wealth

The value of household assets in the United States increased in 2024 to an all time high. The Federal Reserve tracks data that it gathers on assets held by households across the country. Economists believe that as household assets rise in value, so does the propensity for consumers to spend. The so called wealth effect encourages spending and instills confidence in consumers, as expenditures increase with underlying asset values rising.

Increasing real estate values and elevated stock prices have contributed substantial wealth to U.S. households over the past few years. According to data from the National Association of Realtors, home values across the nation are up 49% from five years earlier. The S&P 500 Index has risen over 33% over the past 3 years, adding considerable wealth to households. Largely appreciated assets are also being leveraged as homeowners borrow against the equity in their homes and stock portfolio accounts. (Sources: Fed, NAR)

Where Tariffs Could Hit Hardest – Trade Policy

Smaller companies are likely to see more of a negative impact of new tariffs rather than larger companies. The reliance on imported products by small companies throughout various industries has risen over the past few years. It is much more difficult for smaller companies to pass along tariff costs to consumers rather than larger companies because of distribution channels and capital constraints. Smaller companies also don’t have the scale and eventually end up absorbing these costs affecting their profitability. The United States continues to be one of the world’s largest importers, with a diverse range of products coming from countries including China, Mexico, Canada, Japan, and Germany.

Based on the newly imposed tariffs as of March 2025, several product categories are expected to be significantly affected:

Automobiles and auto parts: The 25% tariff on imports from Canada and Mexico is likely to impact the automotive industry substantially including the major auto manufacturers and smaller suppliers.

Fresh produce: Fruits and vegetables imported from Mexico and Canada will face increased costs.

Electronics: Devices such as phones, computers, and other electronic components from China will be subject to a 20% tariff.

Lumber: Canadian lumber imports will be affected by the 25% tariff, consequently affecting the housing market and home builders.

Energy products: While Canadian energy resources face a lower 10% tariff, they are still impacted.

Agricultural products: Consequently, U.S. exports of chicken, wheat, corn, cotton, soybeans, and pork to China will face retaliatory tariffs.

The amount of the actual tariffs may differ from what the White House has announced as of the beginning of March. Final implementation of targeted countries and products may also change as the administration negotiates with the country’s trade partners. (Sources: U.S. Bureau of Economic Analysis, Imports of goods and services [IEAMGSN], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org)