The imposition of tariffs by President Trump on imports from Mexico and Canada has injected uncertainty into the financial markets, affecting both equities and bonds. These tariffs are anticipated to reduce GDP by 1.2% and increase inflation by 0.7%, according to Bloomberg Economics. This dual threat of inflationary pressures and recession risks is creating a challenging environment for investors. The equity market, already sensitive to downside risks, is under additional pressure as expectations for reduced GDP growth could negatively impact corporate earnings. Investors are also concerned about the potential extension of tariffs to Europe, which could further exacerbate economic worries.
The SPDR S&P 500 ETF (SPY) experienced a decline, falling 0.76% to $597.26 at 1:00 PM on Monday, February 3.