Unsettling developments on Wall Street as Trump's tariff policies face court challenges
Wall Street Unnerved by Ongoing Legal Battle over Trump Tariffs
The resurgence of former President Trump's tariffs on US trading partners has left a lingering effect on Wall Street, as a federal appeals court reinstated the extensive tariffs without explanation during recent trading hours. While the US stock market showed a marginal increase in response, analysts had warned investors not to get too excited given the ongoing legal battle.
American President Donald Trump's trade policies have been at the forefront of Wall Street's activities. An initial decision by the US Court of International Trade declared Trump's imposed tariffs invalid. However, this decision was overturned by the federal appeals court, which reinstated the extensive tariffs, including the base tariff of 10 percent and those targeting countries such as Canada, China, and Mexico. Notably, tariffs affecting sectors like steel, aluminum, and auto imports were not included in the ruling.
Market observers had cautioned investors not to prematurely celebrate the initial court decision. For most of the US's trading partners, the ruling will have minimal impact, according to Goldman Sachs. For instance, the ruling pertains to some tariff increases, but those related to steel, aluminum, and auto imports will remain unaffected.
The Dow-Jones Index gained 0.3 percent to 42,216 points. The S&P-500 and the Nasdaq Composite each improved by 0.4 percent. Tech stocks saw a boost from Nvidia, which posted surprisingly strong quarterly results and an optimistic outlook. By contrast, Salesforce.com reported better-than-expected results but saw its stock fall 3.3 percent, while HP plummeted 8.3 percent after lowering its annual guidance.
The broader economic landscape was marked by uncertainty. Last week, the number of initial jobless claims unexpectedly rose. However, the second reading of the first quarter's Gross Domestic Product (GDP) showed a smaller contraction of the US economy than expected and previously reported. The personal consumption expenditures (PCE) price index, favored by the US central bank as an inflation measure, rose by 3.6 percent, following a 2.4 percent increase in the previous quarter.
Uncertainty weighed on the dollar, which initially appreciated in response to the court ruling but then fully gave up its gains after weak labor market data and turned negative. The Dollar Index fell by 0.5 percent. On the bond market, yields returned after US economic data, as investors sought safe havens due to economic uncertainty.
Gold also benefited from the search for safety, with the troy ounce gaining 1.0 percent. Market participants also pointed to ongoing uncertainty despite the tariff ruling.
Oil prices turned negative after the release of weak labor market data, with notations for Brent and WTI falling by up to 1.4 percent. The increased potential for OPEC+ to increase its production in July is a cause for concern for some observers. Meanwhile, US weekly crude oil inventories were found to have decreased more than analysts had predicted.
Despite a meeting between President Trump and Fed Chair Powell, there were no notable market reactions. The court found that using the International Economic Emergency Powers Act as justification for the tariffs was not within the law's intent, leaving Trump in untested legal territory. The number of initial jobless claims rose unexpectedly last week, and the personal consumption expenditures (PCE) price index rose by 3.6 percent.
- The ongoing legal battle over Trump's tariffs, as seen in the recent reinstatement by a federal appeals court, could have implications beyond Wall Street, potentially affecting various sectors under the community and employment policies, especially those relating to trade with countries like Canada, China, and Mexico.
- In the broader business and political landscape, the uncertainty surrounding Trump's tariff policies and the ongoing legal battle could impact the finance sector, leading investors to seek safe havens such as gold and US Treasury bonds, as seen in the recent fall in the Dollar Index and a return of bond yields after US economic data.
