US equity markets are deep in the red today, with the S&P 500 (SPY) down 1.2% as of 11:50 AM EDT. Apple (AAPL), NVIDIA (NVDA), and Advanced Micro Devices (AMD) have fallen 2.3%, 3.4%, and 2.0%, respectively.
The S&P 500 has closed in the red for three consecutive days now.
President Donald Trump’s surprise announcement of a tariff hike on $200 billion worth of Chinese goods has spooked investors. On May 6, the markets saw the announcement as a negotiation tactic. However, over the last two days, reports have suggested that China has gone back on some of the commitments it made.
Tough on trade
While President Trump has always been tough on trade issues, he’s taken a somewhat circumspect approach since his ‘Tariff Man’ tweet led to a sell-off in December. Prior to the threat of increasing tariffs on Chinese goods, Trump had cited positive progress in US-China trade talks on several occasions.
As for the market’s correction, investors may have started pricing in a trade deal a little too early. While both the United States and China have ample incentives to arrive at a trade deal, President Trump hasn’t shied away from making tough decisions. He also walked away from a recent summit with North Korean leader Kim Jong Un.
Whether the tariffs will be increased to 25% on May 10 remains to be seen. Previously, the tariff hike was postponed twice. If President Trump goes ahead with the tariffs, China will likely retaliate, as its leadership could otherwise face backlash back home. If the same tit-for-tat we saw last year resumes, it could derail the stock market recovery we’ve seen this year.