NEW YORK (AP) — U.S. stocks are drifting Tuesday following President Donald Trump's latest tariff escalation and after the head of the Federal Reserve hinted interest rates aren't likely to change for a while.
The S&P 500 fell 0.2% in the market's first trading since Trump announced 25% tariffs on all foreign steel and aluminum coming into the country. The Dow Jones Industrial Average was edging up by 12 points, or less than 0.1%, as of 1:28 p.m. Eastern time, and the Nasdaq composite was 0.4% lower.
The moves were modest not only in the U.S. stock market but also in in the bond market, where Treasury yields rose by only a bit.
The threat of a possible trade war is very real, of course, with high potential stakes. Most of Wall Street agrees that substantial and sustained tariffs would push up prices for U.S. households and ultimately lead to big pain for financial markets. Trump's announcement on steel late Monday has already triggered a response from European Union chief Ursula von der Leyen, who said Tuesday, "Unjustified tariffs on the EU will not go unanswered — they will trigger firm and proportionate countermeasures."
But Trump has shown he can be quick to pull back on such threats, like he did with 25% tariffs he had announced for all imports from Canada and Mexico, suggesting they may be merely a negotiating chip rather than a true long-term policy. That has much of Wall Street hoping the worst-case scenario may not happen and waiting to see justification for that hope.
“The metal tariffs may serve as negotiating leverage,” according to Solita Marcelli, chief investment officer, Americas, at UBS Global Wealth Management.
In the meantime, much of Wall Street's focus on Wednesday swung to a different part of Washington. Federal Reserve Chair Jerome Powell said again in testimony on Capitol Hill that the Fed is in no hurry to cut interest rates any further.
The Fed had cut its main interest rate sharply through the end of last year, hoping to give a boost to the job market and the overall economy. But worries about inflation potentially staying stubbornly high have helped force the Fed and traders alike to cut back expectations for how many cuts to rates may arrive in 2025. Some traders are even betting on the possibility of zero, in part because of worries about the effects of tariffs.
“We’re in a pretty good place,” Powell said about where the economy and interest rates are. He said again he's aware that going too slowly on rate cuts could damage the economy, while moving too quickly could fan inflation higher.
Higher rates tend to put downward pressure on prices for stocks and other investments, while tapping the brake on the economy by making borrowing more expensive. That could be risky for a U.S. stock market that critics say already looks too expensive.
One way companies can offset such downward pressure is to deliver stronger profits. And big U.S. companies have mostly been doing so this earnings reporting season, as they show how much profit they made during the last three months of 2024. That, though, hasn’t always been enough.
Marriott International fell 4.9% even though it reported a better profit for the latest quarter than analysts expected. Investors focused instead on its forecasted range for an important underlying measure of profit this upcoming year, which fell short of what analysts were expecting.
Helping to offset such losses was DuPont, which climbed 6.9% after the chemical company reported better profit than Wall Street expected. The Delaware company said its results were helped by strong demand in its electronics business, which it is spinning off later this year.
Coca-Cola rose 3.8% after reporting stronger profit and revenue than analysts expected. Growth in China, Brazil and the United States helped lead the way.
In the bond market, the yield on the 10-year Treasury rose to 4.53% from 4.50% late Monday. The two-year Treasury yield, which moves more closely with expectations for upcoming action by the Fed, held steady. It rose to 4.29% from 4.28% late Monday.
In stock markets abroad, indexes were mixed across Europe and Asia. Hong Kong’s Hang Seng fell 1.1%, and South Korea’s Kospi rose 0.7% for some of the bigger moves, while Japanese markets were closed for a national holiday.
Trump has pressed ahead with 10% tariffs on Chinese goods, while China has retaliated by imposing tariffs on U.S. coal and liquefied natural gas products as well as crude oil, agricultural machinery and large-engine cars.
“Beijing’s restraint in targeting only a small sliver of U.S. goods is deemed to be a deliberately less than proportionate response to avert an escalatory tit-for-tat spiral,” said Vishnu Varathan, head of macro research at Mizuho.
“Nonetheless, the reality is that U.S.-China trade tensions are set to structurally ramp-up, even if a negotiated compromise is the endgame for Trump 2.0 tariffs,” Varathan added.
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AP Business Writers Matt Ott and Zen Soo contributed