The imposition of tariffs by President Trump has injected uncertainty into the financial markets, affecting both equities and bonds. These tariffs, aimed at imports from Mexico and Canada, are anticipated to reduce GDP by 1.2% and increase inflation by 0.7%, according to Bloomberg Economics. This scenario presents a dual threat: inflationary pressures that could push short-term interest rates higher and recession risks that might increase demand for long-dated Treasury bonds. The equity market, already sensitive to downside risks, faces further pressure as expectations for reduced GDP growth could negatively impact corporate earnings. Investors are now assessing the potential for these tariffs to extend to Europe, which could heighten economic concerns and lead to a more pronounced selloff in equities if the situation worsens.
The Direxion Daily S&P 500 Bull 2X Shares (SPUU) experienced a decline, falling 1.38% to $152.42 at 1:00 PM on Monday, February 3.