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U.S. stock futures dropped sharply on Monday after U.S. President Donald Trump imposed tariffs on three of its major trade partners, Canada, China, and Mexico.
The new tariffs will begin Tuesday, with a 10% levy on China and a 25% levy on a few Canadian and Mexican imports, each. The U.S. Chamber of Commerce warns of supply chain disruptions and higher family costs, citing concerns over trade with Mexico worth $46 billion in agricultural products, and Canada valued at $97 billion in energy supplied.
The U.S. dollar index strengthened over 1% following this announcement.
All major index futures were down, with the Russell 2000 falling more than 2%. This drop comes after the indices had posted gains for three consecutive weeks.
Companies reporting earnings this week include Amazon.com Inc. (NASDAQ:AMZN), Google parent Alphabet Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG), Palantir Technologies Inc. (NASDAQ:PLTR), and Fortinet Inc. (NASDAQ:FTNT).
The 10-year Treasury yield stood at 4.54%, while the two-year yield was at 4.27%. According to the CME Group's FedWatch tool, there is an 86.5% chance that the Federal Reserve will keep interest rates unchanged for the March meeting.
| Futures | Change (+/-) |
| Nasdaq 100 | -1.78% |
| S&P 500 | -1.57% |
| Dow Jones | -1.38% |
| Russell 2000 | -2.14% |
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ) both experienced negative premarket trading on Monday. SPY fell 1.51% to $592.76, and QQQ plunged 1.72% to $513.33, according to Benzinga Pro data.
Cues From The Last Session
Energy, IT, and materials stocks led the decline on Friday as the U.S. markets reacted to new tariffs on the country's three largest suppliers – Canada, Mexico, and China.
Communication services and consumer discretionary stocks were exceptions. The news overshadowed strong earnings from Exxon Mobil Corp. (NYSE:XOM).
On the economic front, the U.S. personal income rose 0.4% in December (up from 0.3% in November), while personal spending climbed 0.7% to an annualized rate of $20.387 trillion. The core PCE price index increased 0.2%.
| Index | Performance (+/-) | Value |
| Nasdaq Composite | -0.28% | 19,627.44 |
| S&P 500 | -0.50% | 6,040.53 |
| Dow Jones | -0.75% | 44,544.66 |
| Russell 2000 | -0.86% | 2,287.69 |
Insights From Analysts
The newly issued tariffs as highlighted by Treasury Secretary Scott Bessent will be used to bring manufacturing back to the U.S. It will also be used to raise revenues to help pay for extending Trump’s 2017 tax cuts and as a lever to negotiate with other countries as an alternative to sanctions.
However, Ed Yardeni and Eric Wallerstein in their QuickTakes note mentioned that “During Trump 1.0, tariff hikes by the U.S. seem to have depressed merchandise imports in 2018 and 2019. But they also depressed U.S. exports because global economic growth was weakened by trade tensions.”
Ryan Detrick, the chief market strategist at Carson Research highlighted in an X post that February is historically the worst month during a post-election year.
Furthermore, Detrick pointed out that “the first quarter of a post-election year usually isn’t all that strong.”
He added that the S&P 500 has been up eight of the past nine quarters. “One of these days it’ll fall and that is perfectly normal.”
According to Ivan Martchev, investment strategist at Navellier & Associates, “Seasonality is not a promise.”
Martchev highlighted that December was supposed to be strong, but it turned out to be weak. He added that since 1928, September has been the weakest seasonal month, but last year only the first week was down while the rest of the month was strong.
“So as we approach February which is weak over the long term, we must remember that seasonality is a guideline, but it can deviate widely each year,” he added.
See Also: How to Trade Futures
Upcoming Economic Data
Here’s what investors will keep an eye on for the week:
Stocks In Focus:
Commodities, Gold And Global Equity Markets:
Crude oil futures were trading higher in the early New York session by 2.29% to hover around $74.19 per barrel.
The gold spot index was down by 0.16% to $2,796.63 per ounce. The Dollar Index was up 1.09% at 109.554 level.
Asian markets fell sharply on Monday as Hong Kong's Hang Seng, Australia's ASX 200, South Korea's Kospi, China's CSI 300, and Japan's Nikkei 225 index declined. European markets were also lower in trade.
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