Feb 13 – U.S. equity futures slid while the dollar and gold rallied on Tuesday, reflecting growing caution among investors after President Donald Trump imposed 25% tariffs on all U.S. imports of steel and aluminum.
Contracts for the S&P 500 and Nasdaq 100 both declined by approximately 0.2%. The dollar index saw a slight uptick after gaining ground on Monday. Haven assets like gold briefly surged above $2,921 per ounce, marking a new milestone.
Mixed Asian Markets Amid Trade Fears
Asian equities showed little movement, with markets in Japan closed for a holiday and no U.S. Treasury trading in the region. Australian and South Korean stocks were slightly higher after Monday’s declines, while Hong Kong’s equity futures were flat.
Trump’s tariff announcement, which applies to all countries—including key suppliers Mexico and Canada—set to take effect on March 4, caused defensive market reactions. However, Trump indicated a potential exemption for Australia, raising the possibility of further negotiations on trade.
Inflation Data and Fed Testimony in Focus
Investors are also eyeing important inflation data and Federal Reserve Chair Jerome Powell’s upcoming testimony before Congress. The New York Fed’s Survey of Consumer Expectations revealed that inflation expectations for the next year and three years remained steady at 3%.
Chris Larkin of E*Trade, part of Morgan Stanley, noted that inflation data, Powell’s testimony, and the new tariffs could dominate the market narrative. He emphasized that the S&P 500 might need relief from negative surprises like tariffs or poor consumer sentiment to break out of its current two-month consolidation.
Hedge Funds Take a Bullish Stance
Hedge funds were significant buyers of U.S. stocks last week, shifting from a bearish outlook to a more optimistic one following stronger-than-expected earnings reports. According to Goldman Sachs Group’s prime brokerage report, hedge funds bought U.S. equities at the fastest pace since November, with the heaviest net buying in over three years in the information technology sector.
Market Resilience Amid Tariffs
Despite the negative impact of tariffs, stocks showed resilience, with the S&P 500 rising by 0.7% on Monday and the Nasdaq 100 climbing 1.2%. The yield on 10-year Treasuries remained unchanged at 4.5%, while gold topped $2,900 per ounce. Oil prices advanced as shrinking Russian production alleviated concerns about an oil glut.
Potential for Future Pullbacks
While the market showed resilience, strategists from Deutsche Bank, including Binky Chadha, warned that trade escalations could lead to pullbacks in equities. Historically, geopolitical shocks have triggered sharp but short-lived sell-offs, with stocks typically recovering before a resolution. In such scenarios, equities often fall 6%-8% over three weeks before rebounding.
Christian Floro of Principal Asset Management emphasized the importance of diversification in this uncertain market environment, stating that unpredictability in policies could present significant risks for investors. Diversification will be essential to manage portfolio risk and capture emerging opportunities.
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