Tariff confusion persists, recovery effort doesn’t

The stock market staged a recovery effort yesterday, seemingly enthused by the news that President Trump granted Canada and Mexico a one-month reprieve from tariffs on autos, the better-than-expected ISM Services PMI report, and a Beige Book report that had some notes of optimism about the economic outlook.

The goodwill built up in that recovery effort has been largely retracted today.

Currently, the S&P 500 futures are down 66 points and are trading 1.2% below fair value, the Nasdaq 100 futures are down 313 points and are trading 1.5% below fair value, and the Dow Jones Industrial Average futures are down 376 points and are trading 0.9% below fair value.

The reversal of fortune is more of a return to recent trend, as tariff confusion is garnering a good chunk of the blame for the negative disposition.

Headlines today suggest the president is considering exemptions for agricultural products from Canada and Mexico; meanwhile, China’s U.S. Embassy took to X to proclaim that China is prepared to fight any type of war with the U.S. The reciprocal tariffs on April 2 are still hanging out there, too.

Tariffs are one part of today’s early selling equation. Other factors include the fallout in Marvell Technology (MRVL) and MongoDB (MDB) following their earnings reports and guidance, cautious-sounding guidance from retailers Macy’s (M), Victoria’s Secret (VSCO), and Burlington Stores (BURL), and Alibaba (BABA) introducing a new open-source AI model that has fanned concerns about the U.S. AI exceptionalism theme.

Underlying concerns about economic growth and earnings growth continue to fester and have tempered the market’s buy-the-dip conviction. Today’s economic data had some positive hues to it, yet it wasn’t so positive to completely reverse the tone of the equity futures market.

• The January Trade Balance showed a large widening in the trade deficit to $131.4 billion (Briefing.com consensus -$93.5 billion) from an upwardly revised $98.1 billion (from -$98.4 billion) in December. January imports were $36.6 billion more than December imports while January exports were $3.3 billion more than December exports.
  • The key takeaway from the report is that efforts to get in front of expected tariff actions drove the huge increase in imports, which will be a drag on Q1 GDP forecasts.
• Weekly initial jobless claims for the week ending March 1 decreased by 21,000 to 221,000 (Briefing.com consensus 234,000). Continuing jobless claims for the week ending February 22 increased by 42,000 to 1.897 million.
  • The key takeaway from the report is that the reduced level of initial claims — a leading indicator — will temper concerns for the time being about the labor market showing more pronounced signs of weakening.
• Q4 productivity was upwardly revised to 1.5% (Briefing.com consensus 1.2%) from the advance estimate of 1.2%. Q4 unit labor costs were revised down to 2.2% (Briefing.com consensus 3.0%) from the advance estimate of 3.0%.
  • The key takeaway from the report is that both components had the right skew for market sentiment in that productivity was higher than previously reported while unit labor costs (an inflation gauge) were lower than previously reported, aided by the improved productivity.

Separately, the ECB cut its key interest rates by 25 basis points, as expected, yet that didn’t diminish the renewed vigor of the euro, which has been rallying around Germany’s proposed (and significant) fiscal stimulus plan to boost infrastructure and defense spending. EUR/USD +0.4% to 1.0827.

The Japanese yen is also stronger again (USD/JPY -1.0% to 147.47), as market participants see a divergence in monetary policy between the Federal Reserve (more likely to cut rates) and the Bank of Japan (more likely to raise rates).

The U.S. Dollar Index is down 1.7% to 103.96 versus 110.18 in mid-January.

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Originally Posted March 6, 2025 – Tariff confusion persists, recovery effort doesn’t