US stocks pulled back on Monday after reignited simmering trade tensions with the US and China, putting investors on edge. The Dow Jones Industrial Average (DJI) fell by 0.37%, or about 180 points, while the S&P 500 (GSPC) dipped by 0.02%. In contrast, the Nasdaq Composite (IXIC) gained 0.29%. This movement comes after a solid May where the S&P 500 rose by more than 6%, signaling a contrast as investors now face renewed trade concerns between the world’s two largest economies.
The escalation occurred after China responded to President Trump’s accusations that the country had violated the Geneva tariff truce. The renewed friction between the two nations has dampened hopes for a quick resolution to their trade dispute, leaving investors wary about the potential economic fallout.
Market Movers:
- Ford (F): -4.21%: Ford fell significantly after the announcement that President Trump would double tariffs on imported steel and aluminum. The move, expected to raise production costs for automakers, weighed heavily on Ford’s shares, as the company is highly sensitive to rising raw material costs.
- General Motors (GM): -5.08%: Like Ford, General Motors faced a steep dip, dropping over 5%. The decision to increase tariffs on steel and aluminum is expected to further inflate manufacturing costs for GM, which had already been grappling with supply chain disruptions and global chip shortages.
- Tesla (TSLA): -2.41%: Tesla’s stock continued to slide, dropping by 2.41%, amid troubling sales reports from key European markets. The company’s sales in Sweden, Portugal, and Denmark plummeted, highlighting challenges in the EV maker's expansion strategy outside of the US, despite a solid performance in Norway.
- Cleveland-Cliffs (CLF): +21.46%: Cleveland-Cliffs, a US-based steelmaker, surged by 21.46% in response to President Trump’s announcement that steel tariffs would double to 50%. The increased tariffs benefit US steel producers like Cleveland-Cliffs, which stand to gain market share as foreign competitors face higher costs.
US-China Trade Tensions
The trade war between the US and China reignited once again on Monday as China responded to President Trump’s accusations that it had violated the Geneva tariff truce. Trump’s comments have left the trade talks at a standstill, with both sides blaming each other for the breakdown. These developments are fueling fears of a prolonged trade conflict, which could have far-reaching impacts on global supply chains and economic stability.
The tensions come on the heels of a turbulent legal situation regarding Trump’s tariffs. A federal appeals court temporarily reinstated many of Trump’s tariffs after a lower court ruling had blocked them, keeping uncertainty at the forefront for businesses and investors.
Manufacturing Sector Slows Amid Trade Disruptions
New data from the Institute for Supply Management (ISM) revealed that US manufacturing activity contracted in May, with the PMI index dropping to 48.5, a slight improvement from April but still well below the neutral 50-mark that separates expansion from contraction. This slowdown in manufacturing is partly attributed to ongoing trade disputes and the increasing cost of imports due to tariffs. Imports have fallen to their lowest levels since 2009, signaling reduced demand and strained supply chains.
Despite the contraction in the manufacturing sector, a separate report from S&P Global showed some signs of resilience, with a slight uptick in new orders. However, analysts caution that this might be a temporary blip driven by companies rushing to secure supplies before tariffs escalate further.
Oil and Commodity Markets Respond to Global Fears
The energy sector saw significant movement today, with crude oil prices rising sharply following an announcement from OPEC+ that it would increase production by a smaller-than-expected amount in July. West Texas Intermediate (WTI) crude surged by 3.9%, reaching $63.25 per barrel, while Brent crude gained 3.7%, climbing to $65.07. This move follows a string of bearish headlines about global oil supply, and the rise in oil prices is helping lift energy stocks amid growing demand concerns in the face of trade instability.
Gold also saw a boost, as investors sought safe-haven assets in the wake of heightened geopolitical risks tied to the US-China tensions and the ongoing war in Ukraine. Gold futures rose in anticipation of further economic uncertainty.
Looking Ahead
As we move into June, all eyes will be on the upcoming economic data, particularly the May nonfarm payrolls report set to be released later this week. Investors will look for clues on how the trade war is affecting the US job market and broader economic activity. Additionally, the Federal Reserve’s stance on interest rates remains a key area of focus, with the ongoing trade tensions adding another layer of complexity to the central bank’s decision-making process.
Given the volatility driven by US-China tensions, inflation concerns, and weaker manufacturing data, the markets could continue to see fluctuations throughout the week. Investors will need to navigate these risks carefully as the global economic outlook grows increasingly uncertain.