It Girl Identity: Breaking News - Tariffs and Their Market Impact

It Girl Identity Newsletter

Before we get started…

In today’s update, we’re bringing you a special focus on the tariff situation, a development that's significantly affecting global markets. As this issue unfolds, we wanted to give you a concise breakdown of what's happening and why it’s so important to stay informed. This is a critical moment in trade and economics, and we think it’s vital to address it now rather than wait for our next full newsletter issue, which will be waiting in your inbox next Monday morning.

Understanding the Tariff Situation

What Are Tariffs? Tariffs are taxes placed on imported goods. They make foreign products more expensive to encourage people to buy domestic goods instead.

What is Happening? President Trump announced much higher tariffs on goods coming into the US from most countries. This caused shock in global markets and triggered retaliation from other countries. Tariffs are now at their highest level since 1909.

Why is This Happening? From Trump’s perspective, the tariffs are “medicine” to fix long-standing trade imbalances that he believes have harmed the U.S. economy and workers. By raising tariffs, he seeks to pressure other countries into lowering their tariffs, removing non-tariff barriers, and buying more American goods. His aim is to bring manufacturing and jobs back to the U.S., reduce the trade deficit, and protect American industries from unfair competition. Trump believes the short-term economic pain will lead to long-term benefits by rebalancing trade relationships and increasing U.S. economic independence.

How Will This Affect Us?

1. Economic impact: Expected mild recessions in both the US and Europe

2. Consumer prices: Will rise, especially for imported goods

3. Investment: Businesses may delay investments and hiring

4. Inflation: Will increase in the US as companies raise prices

5. Corporate profits: Expected to fall—S&P 500 earnings may drop by 9.5%

6. Stock markets: Likely to decline further, especially if a recession hits

Breakdown of the Tariffs:

• 10% universal tariff on all imports

• Reciprocal tariffs up to 50% on countries with high tariffs on US goods

• Weighted average tariff is now 23%, up from 2% a few years ago

• China retaliated with a 34% tariff on US goods

Timeline of Situation

How Has This Affected Markets?

The first two days of the week have been turbulent, with geopolitical tensions, fluctuating yields, and volatility in the tech sector driving market movements.

Monday’s Market Action:

• S&P 500: appeared set for a third consecutive decline but ended down only 0.2%, staying close to bear market territory.

• Dow Jones: dropped 349 points, reflecting market unease.

• Treasury Yields: 10-year yields surged from 4% to 4.2%, boosting bank stocks, especially Bank of America.

• Tech Stocks: A recovery in AI companies like Nvidia and Palantir helped Nasdaq end the day up by 0.1%.

Tuesday’s Market Action:

• US dollar: weakened, while the euro gained strength after China rejected what it called "blackmail" from the U.S. on tariffs.

• Gold prices: reached new all-time highs, sparking concerns about the sustainability of this rally amidst geopolitical tensions.

• Asia and Europe Stock Markets: rebounded, fueled by hopes the U.S. would engage in tariff negotiations.

Key Developments to Watch:

• US Relations with China & Europe: On Tuesday, China rejected the U.S.’s approach to tariffs, calling it “blackmail.” This tension continues to weigh on market sentiment, with investors fearing prolonged conflict. In Europe, the European Commission proposed a "zero-for-zero" tariff deal to avoid a trade war, but the EU retaliated with 25% tariffs on some US goods.

• Gold Rally: Gold prices surged to new all-time highs, reminiscent of the 1980 rally, driven by fears of political and economic uncertainty. However, some market players remain skeptical about its sustainability given the global economic backdrop.

• Market Comparison to Emerging Markets: The head of Euronext, a European stock exchange operator, noted that the US is beginning to resemble an emerging market due to the economic strain caused by the trade conflict, adding more uncertainty for investors.

• Impact on Tech Sector:

  • Major tech stocks, including Apple and Tesla, are feeling the strain from trade tensions. Apple is particularly vulnerable, with 64% of its revenue coming from international markets, especially China.

  • Apple’s global supply chain is under pressure, and shifting even 10% of it from Asia to the U.S. could cost $30 billion and take three years, leading to disruptions.

  • Analysts have lowered price targets for Apple and Tesla due to growing risks from the trade war.

Sources: Barclays - The Eagle Eye, Barclays Research, WSJ

Disclaimer: Information shared here is for educational purposes only. Consult a financial advisor for personalized advice.

Stay tuned for the full version of our newsletter this coming Monday, but for now, here’s a quick update on the tariff situation and its potential impact on the markets.

With Love,

It Girl Identity