Markets faced renewed selling pressure on 3 March, with the Nasdaq Composite falling 2.6% to close at 18,350.19. The downturn extended beyond tech stocks, as the S&P 500 declined 1.8% and the Dow Jones Industrial Average lost 1.5%.
Rising trade tensions contributed to a surge in market volatility, reflected in the Volatility Index (VIX), which climbed to 22.78, its highest level since December.
Trade Tensions and New Tariff Policies
The sell-off followed an announcement from President Donald Trump, who imposed 25% tariffs on all imports from Canada and Mexico, set to take effect on 4 March. The policy, aimed at curbing illegal immigration, tackling fentanyl trafficking, and reducing trade deficits, offers no negotiation window and significantly raises costs for North American trade partners.
While most imported goods will face the full 25% tariff, the administration has confirmed that Canadian energy imports, including crude oil and natural gas, will receive a reduced tariff rate of 10%.
The move has already triggered retaliatory measures from Canada, which announced 25% counter-tariffs on U.S. goods worth 155 billion Canadian dollars ($107 billion USD). Mexico has also indicated plans for trade countermeasures, with details expected later this week.
Source: AP News
Technology Sector Under Pressure
The technology sector bore the brunt of the sell-off, with Nvidia tumbling nearly 9%, extending losses from the previous week as investors weighed the potential impact of tariffs and export restrictions on AI-related spending. Tesla shares fell 2.8%, reflecting broader concerns over supply chain costs and economic uncertainty.
Flight to Safety: Bonds and Currency Markets React
Bond markets showed a clear flight-to-safety reaction, with the 10-year U.S. Treasury yield dropping to 4.16% from 4.23% as investors sought refuge from equity market volatility.
Meanwhile, the Canadian dollar and Mexican peso fell to one-month lows against the U.S. dollar, reflecting expectations of economic strain in both countries following the trade policy shift.
Source: Reuters
Economic Outlook and Potential Policy Adjustments
The trade escalation raises fresh concerns about global supply chain disruptions and inflationary pressures. Analysts are closely watching whether the Federal Reserve will adjust its policy stance in response to higher trade costs and potential economic slowdown risks. With market volatility on the rise, corporate earnings and consumer confidence are key factors that could shape future monetary policy discussions.
Looking Ahead
With the tariffs set to take effect, investors remain focused on central bank policy decisions and upcoming economic data releases. This week’s key reports include:
- ADP National Employment Report (5 March)
- Nonfarm Payrolls Report (7 March) – Forecasts suggest 133,000 new jobs with the unemployment rate steady at 4%.
Market sentiment remains cautious, with uncertainty dominating the outlook as traders assess the broader impact of escalating trade tensions.
