March 4th Market Overview

Happy Tuesday.

Some decent recovery action across the board today as markets digested the tariff news. Initial fear turned to cautious optimism as folks began pricing in policy certainty - now that the tariffs are actually in effect and trading partners have shown their retaliatory hands, the market seems to have found its footing.

Of course, we're just one unexpected headline away from another volatile session, but for now, the market appears to be adjusting to the new landscape.

Let's dig in...

Executive Summary

• Markets wiped out all post-election gains as Trump's sweeping tariffs officially went into effect today
  

• Trading partners responded swiftly - Canada immediately imposed matching 25% tariffs, China targeted US agriculture with up to 15% duties
  

• Market sentiment has shifted with traders now pricing in three Fed rate cuts for 2025
  

• Commerce Secretary Lutnick framed the measures as a "drug war, not a trade war" while Treasury Secretary Bessent dismissed market concerns

Market Overview

Key Market Drivers

1. Tariff Implementation: President Trump’s sweeping tariffs took effect at midnight, including 25% duties on Canada and Mexico, and an additional 10% on Chinese imports (bringing the total to 20%)
   

2. Retaliatory Measures: Canada immediately announced matching 25% tariffs on CA$30 billion worth of US imports, with levies on another CA$125 billion to follow in 21 days; China announced targeted tariffs of up to 15% on US agricultural products
   

3. Fed Rate Cut Expectations: Traders now fully price in three interest rate cuts from the Federal Reserve this year, with a 50/50 chance of a cut in May - a significant shift from just one week ago
   

4. Post-Election Euphoria Evaporates: The S&P 500 has erased about $3.3 trillion in market cap since its February 19 record close, with the index now down around 2% since the start of 2025

Stock Spotlight

• $OKTA ▲ 22.71%: Surged after "blowout" quarter with strong sales, earnings, and 2025 guidance amid increased cybersecurity spending

• $INTC ▼ 4.85%: Extended Monday's drop after $TSM's $100B US investment announcement; earlier brief rally on Nvidia/Broadcom testing Intel's new tech

• $TGT (flat): Beat earnings but warned tariffs will pressure Q1 profit; declined specific guidance citing "consumer uncertainty"

• $BBY (lower): Muted annual forecast despite quarterly beat; CEO warned consumer prices "highly likely" to rise with 60% of goods from China

Big Name Updates

• $NVDA ▲ 3%: Partial recovery from Monday's 9% decline

• $GOOG/$GOOGL ▲ 2.8%: Outperformed broader market

• $META ▼ 1.7%: Continued slide amid trade tensions

• $TSLA ▼ 2%: Pressured by reports of 49% drop in February China EV sales

• $TSM (higher): Gained on $100B US investment announcement

Other Notable News

• Auto Industry: S&P Global Mobility warns tariffs could cut 20,000 daily North American vehicle production units by next week

• Consumer Prices: Target CEO warned imminent price hikes on produce including strawberries, avocados, and bananas

• Energy Markets: New England gas prices could rise 20-40¢/gallon by mid-March due to Canadian fuel import tariffs

• Oil Prices: US crude fell 1.02% to $67.67/barrel; Brent dropped 1.42% to $70.60; refiner stocks ($MPC, $PSX, $VLO) declined on disruption concerns

Sector Watch

Bond Market

• 10-year yield ($TNX): 4.21%, down 63+ basis points from January high but up today slightly

• Yield curve steepened significantly

• Traders pricing in three quarter-point rate cuts in a 2025

• Citi analyst Stuart Kaiser: "Rates are lower for the 'wrong' reasons"

  • Return to "bad news for economy is bad news for stocks" dynamic

Policy Watch (Tariff talk)

• Canada Response:

  • Immediate retaliatory tariffs on US$20.8B of American goods

  • Additional levies on US$86.7B to follow in a21 days

  • PM Trudeau: Tariffs "will remain in place until US tariffs are withdrawn"

• China Response:

  • Up to 15% tariffs on US farm products (effective March 10)

  • Restrictions on 15 US companies

  • Analysis: Beijing's approach deliberately restrained, leaving room for negotiations

• Mexico Response:

  • President Sheinbaum to announce retaliatory measures Sunday

  • "It's time to defend Mexico and its sovereignty"

  • Emphasized ongoing dialogue continues

• US Administration Stance:

  • Treasury Secretary Bessent: Market sell-off "temporary"; policy focuses on "Main Street" over Wall Street

  • Commerce Secretary Lutnick: Characterized as "drug war" not "trade war"; could lift if fentanyl flow stops

What to Watch

1. Joint Congressional Address Tonight: President Trump will deliver his address to Congress, with tariffs expected to be a major focus alongside immigration and government efficiency measures

   • Tesla CEO and Trump advisor Elon Musk will attend

   • The speech occurs amid this week’s trade war escalation

   • Democratic response will come from Senator Elissa Slotkin of Michigan
     

2. Reciprocal Tariffs (April 2): Trump confirmed these additional tariffs will target countries deemed to use unfair trade practices

   • European Union likely in the crosshairs with Trump specifically criticizing their value-added tax system

   • Trump threatened 25% tariffs on the EU last Wednesday

   • Total US-EU goods trade was $975 billion in 2024 with a $235.6 billion US deficit
     

3. Regional Economic Impacts: Northeastern states will see rapid effects from Canadian energy tariffs

   • Maine, Vermont, Connecticut, Massachusetts, Rhode Island, and New Hampshire face immediate fuel price increases

   • Ontario threatening a 25% tax on electricity exports to 1.5 million US homes

   • Auto industry could quickly face production cuts affecting 20,000 vehicles daily

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Thanks for reading 🙂

- John