On Tuesday, the Dow Jones Industrial Average (DJIA) experienced some turbulence amid anticipation of upcoming tariffs. U.S. business survey indexes have shown contraction for the second consecutive month, adding to the market’s anxiety. The new tariffs, which are expected to be announced on Wednesday, could take effect immediately.
The Dow Jones had a rocky start as news surfaced that the Purchasing Managers Index (PMI) results fell short of expectations. Nonetheless, it regained some traction as investors shifted their focus, looking towards an aggressive rate-cutting cycle by the Federal Reserve. Many traders are holding back while they await President Donald Trump’s tariff announcement, provocatively referred to as “Liberation Day.”
The specifics of these tariffs remain somewhat mysterious. Since taking office on January 20, President Trump’s administration has engaged in a strategic tug-of-war with the markets concerning tariffs, often announcing, modifying, or rescinding them. As of now, there’s speculation about potential flat import taxes on cars, lumber, and pharmaceuticals, alongside sweeping tariffs targeting several of the U.S.’s key trading partners. The official announcement is scheduled for 7 p.m. GMT (4 p.m. EST) on Wednesday, taking place in the White House’s Rose Garden.
Turning to the economic data, the U.S. ISM Manufacturing PMI for March fell to 49.0 from its previous 50.3, marking a sharper decline than what many had predicted. The consensus had anticipated a figure of at least 49.5. Meanwhile, the New Orders Index from the ISM Manufacturing report also dropped significantly, reaching a two-year low of 45.2.
In spite of unsettling economic reports and the looming tariff concerns, the rate markets have seen this as a chance to bet on more Fed rate cuts this year. According to the CME’s FedWatch Tool, traders now believe there’s an almost 80% chance of a 25 basis points rate reduction by the Federal Reserve at their June 18 meeting.
In the stock market, most indices managed to stay relatively stable on Tuesday. Nonetheless, the Dow Jones still hovered around 200 points below Monday’s closing mark, trading near 41,800. The S&P 500 dipped a bit, falling below 5,600, while the Nasdaq Composite remained steady at roughly 17,300.
Of note, Tesla shares bounced back by 4.7%, closing at $271. Though they are in recovery mode, the electric vehicle giant’s stock is significantly down from the record highs of over $435 seen last December. Conversely, Southwest Airlines saw a steep drop of 6.8% to $31 per share after a tough downgrade spurred sell-offs in airline stocks, with Jeffries analysts rating Southwest as “underperforming.”
Looking ahead at the Dow Jones, it is currently navigating close to the 200-day Exponential Moving Average (EMA) around the 42,000 mark. Investors remain vigilant in anticipation of intensified geopolitical tensions coming to a head. Despite being capped well below the record highs above 45,000 from last November, the index appears to have found a solid technical support level north of 40,000.
For those keen on more updates within the financial sphere, the performance of the ISM Manufacturing PMI is a critical indicator to follow. It provides insight into U.S. manufacturing activity, with a reading over 50 signaling expansion and below 50 indicating contraction. This index is significant for gauging the economic environment and potential implications for the U.S. Dollar.
